By Helene Durand and Natalie Harrison
LONDON, April 28 (IFR) - A change in S&P's bank ratingsmethodology will have limited impact on the sector, the agencysaid on Tuesday after it published new criteria forincorporating additional loss-absorbing capacity (ALAC).
The rating agency placed 57 issuers under "criteriaobservation", with the majority of those being European banks inthe UK and Germany, including Barclays Bank, Commerzbank,Deutsche Bank, HSBC and Standard Chartered.
"We expect these criteria to result in limited ratingchanges upon becoming effective," S&P said.
Only four jurisdictions, all of them in Europe, haveresolution regimes in place that may meet S&P's criteria forALAC.
"In our preliminary estimate, we expect that just less thanhalf of the eligible institutions have sufficient ALAC (based onour current projections) for one or two notches of ALAC uplift,"S&P said.
It expects the ALAC criteria will apply to morejurisdictions as resolution policy frameworks are being definedand implemented, including the role of bail-in instruments thatwould generally constitute a bank's ALAC.
The agency published a draft criteria at the end of 2014 asit sought to reflect in its ratings the amount of loss-absorbingdebt that banks hold.
The agency reviewed its methodology to allow an uplift to anissuer's credit rating above its standalone credit profile,depending on the size of capital buffer held against potentialshortfalls.
These buffers, made up of hybrid capital and separate fromthe existing capital requirements ratio, would be written off orconverted into ordinary shares when a bank nears a trigger ofnon-viability and needs to be restructured.
Reducing the risk of the lender defaulting on its seniorobligations, this additional capital cushion should allow anupgrade of up to two notches, S&P said. (Reporting by Helene Durand, Editing by Anil Mayre, LuzetteStrauss)