itch Ratings has affirmed the Long-term Issuer Default Ratings (IDR) of three Romanian banks: UniCredit Tiriac Bank S.A. (UCTB) at ‘BBB+’, Negative Outlook; Banca Transilvania S.A. (BT) at ‘BB-‘, Stable Outlook and ProCredit Bank Romania (PCBR) at ‘BB+’, Stable Outlook. A full list of rating actions is listed at the end of this document.RATING DRIVERS AND SENSITIVITIES: UCTB’S IDR AND SUPPORT RATING
The affirmation of UCTB’s IDRs and Support Rating reflects Fitch’s continued
view that the bank’s ultimate parent, UniCredit S.p.A. (UC; ‘A-‘/Negative),
would be likely to have a strong propensity to support UCTB through UC’s fully
owned subsidiary, UniCredit Bank Austria AG (‘A’/Stable). This view takes into
account the continued high strategic importance of the Central and Eastern
Europe region for UC. The Negative Outlook on UCTB’s Long-term IDR reflects that
on the parent.
The IDRs could be downgraded if UC was downgraded, or if Romania (‘BBB-‘/Stable)
was downgraded and hence the Romanian Country Ceiling (‘BBB+’). However, the
latter is not currently expected, as reflected by the Stable Outlook on the
rating.
RATING DRIVERS AND SENSITIVITIES: UCTB’S VIABILITY RATING
UCTB’s ‘bb-‘ Viability Rating (VR) reflects the pressure on its profitability
from rising loan impairment charges (LICs), rising NPL ratios, lending
concentrations in fragile sectors including real estate and construction, and
reliance on its parent for funding and its moderate capital levels. The rating
also takes into account UCTB’s good efficiency, limited market risk and
comfortable liquidity.
An upgrade of the VR is unlikely in the short term. A downgrade could result
from continued deterioration in asset quality, leading to further weakness in
profitability and capitalisation.
RATING DRIVERS AND SENSITIVITIES: BT’S IDR, VIABILITY RATING AND SUPPORT RATING
FLOOR
BT’s Long-Term IDR is driven by its individual strength, reflected in its VR of
‘bb-‘. The VR reflects the bank’s strong deposit funding base, improving
profitability and lower share of foreign-currency lending. Capitalisation is
adequate and internal capital generation is sound.
BT’s Support Rating of ‘3’ and Support Rating Floor of ‘BB-‘ reflect the bank’s
systemic importance as the largest domestically-owned private bank with a
nationwide franchise in Romania, as a result of which Fitch believes there to be
a moderate likelihood that the Romanian authorities would provide support if
necessary.
BT’s VR and Long-term IDR could be upgraded if there were sustained improvements
in asset quality supported by a recovery in the macroeconomic environment, and
continued sound performance. Downside risk to the VR could come primarily from a
major deterioration in asset quality, leading to a substantial worsening of
capitalisation, which is not likely, in Fitch’s view.
The Long-term IDR would come under downward pressure only if there was both a
downgrade of the VR and a downward revision of Fitch’s expectation of sovereign
support for the bank, for example should timely support not be made available if
required.
RATING DRIVERS AND SENSITIVITIES: PCBR’s LONG-TERM IDRS AND SUPPORT RATING
PCBR’s Long-Term IDRs and Support Rating reflect Fitch’s opinion of potential
support from its main shareholder, ProCredit Holding AG & Co KGaA (PCH,
‘BBB-‘/Stable), given PCH’s history of support for its bank subsidiaries and
PCBR’s advanced integration into the group. The ratings could be upgraded or
downgraded if PCH’s ratings changed.
RATING DRIVERS AND SENSITIVITIES: PCBR’s VR
PCBR’s ‘b’ VR considers the bank’s small market size in Romania and increasing
market competition, improving but weak profitability mainly due to its low
operating efficiency and only acceptable capitalisation given the low internal
capital generation. The bank’s VR also reflects good asset quality (with 90 day
overdue loans equalling 4.2% of gross loans at end-Q112, 3% at end-2010) and
conservative provisioning of impaired loans which reflects the risk management
culture of the group. Fitch still expects some asset quality deterioration due
to the modest growth prospects for the Romanian economy and migration of
restructured loans (14.2% of gross loans at end-Q112, of which 69% were not
included in the doubtful and loss regulatory categories).
The VR could be downgraded if any negative performance was not balanced by a
material increase in capitalisation. A significant and sustainable improvement
in core profitability and asset quality in addition to improved franchise could
lead to an upgrade of the VR.
The Romanian banking system continues to suffer from weak economic activity at
home and in the region. Following two consecutive years of sharp contraction,
GDP grew by 2.5% in 2011 (2012 forecast for GDP growth: 1.3%). However loan
demand, especially from individuals, is still weak. Exposure to turmoil in
Greece and structural weaknesses remain potential risks. Despite the loose
monetary policy of the Central Bank, funding costs are increasing because of
still significant external borrowings, although the sector loan to deposit ratio
has fallen to 118% at end-Q112 from 131% at end-2008, and increasing competition
for local customer deposits.
GDP contraction negatively affected asset quality and resulted in a steep
increase in NPLs (loans overdue by 90 days or more) which are yet to peak. The
NPL ratio was 15.9% at end-Q112 compared to 11.9% at end-2010, and the banking
system reported net losses in 2011, mainly due to loan impairment. The high
level of foreign currency lending, often to un-hedged borrowers, coupled with
long maturities of retail loans, are sources of potential asset-quality risk.
However, the capitalisation of the Romanian banking sector is adequate and the
liquidity position remained sound even at the bottom of the economic cycle. In
Fitch’s view, a stabilisation of the banking system performance is likely in
2012-2013 as NPLs should start to plateau in a slightly more benign operating
environment, but a marked recovery is not expected.
The rating actions are as follows:
UniCredit Tiriac Bank S.A.:
Long-term foreign currency IDR: affirmed at ‘BBB+’; Outlook Negative
Short-term foreign currency IDR: affirmed at ‘F2’
Support Rating: affirmed at ‘2’
Viability Rating: affirmed at ‘bb-‘
Banca Transilvania S.A.:
Long-term foreign currency IDR: affirmed at ‘BB-‘; Outlook Stable
Short-term foreign currency IDR: affirmed at ‘B’
Support Rating: affirmed at ‘3’
Viability Rating: affirmed at ‘bb-‘
Support Rating Floor: affirmed at ‘BB-‘
ProCredit Bank (Romania):
Long-term foreign currency IDR: affirmed at ‘BB+’; Outlook Stable
Short-term foreign currency IDR: affirmed at ‘B’
Long-term local currency IDR: affirmed at ‘BB+’; Outlook Stable
Short-term local currency IDR: affirmed at ‘B’
Support Rating: affirmed at ‘3’
Viability Rating: affirmed at ‘b’
