Fitch Downgrades Romanian Garanti Bank S.A.’s SSR to ‘b’; Affirms IDR at ‘BB-‘/Stable

Fitch Ratings has downgraded Garanti Bank S.A.’s (GBR) Shareholder Support Rating (SSR) to ‘b’ from ‘b+’. At the same time GBR’s Long-Term Issuer Default Rating (IDR) is affirmed at ‘BB-‘ with Stable Outlook and Viability Rating (VR) at ‘bb-‘.

The downgrade of the SSR follows the recent downgrade of GBR’s 100% shareholder, Turkiye Garanti Bankasi A.S.’s (Garanti BBVA) Long-Term Foreign-Currency IDR to ‘B’.

The affirmation of GBR’s VR reflects no major changes to the bank’s standalone credit profile since the last rating action in February 2022. The affirmation of GBR’s IDRs with Stable Outlook reflects our view that GBR’s risk profile continues to be sufficiently independent from Garanti BBVA to allow GBR to be rated above Garanti BBVA.

GBR’s SSR is driven by potential institutional support from Banco Bilbao Vizcaya Argentaria (BBVA; BBB+/Stable), the majority and controlling shareholder of Garanti BBVA, which we view as the ultimate source of support if ever required. GBR’s SSR indicates a limited probability of institutional support from BBVA, due to Fitch’s view of the low strategic importance of the Romanian operations for BBVA.

In addition, we would not expect BBVA to support GBR over and above the support it would extend to Garanti BBVA. Hence, Garanti BBVA ‘s ‘B’ Long-Term Foreign-Currency IDR, which incorporates Fitch’s view of government intervention risk in the Turkish banking sector, constrains our assessment of shareholder support available to GBR to ‘b’.

GBR’s IDRs are driven by its standalone credit profile, as reflected in its VR of ‘bb-‘. The key rating drivers for GBR’s IDRs, and VR are those outlined in our Rating Action Commentary published on 3 February 2022 (“Fitch Revises Romanian Garanti Bank’s Outlook to Stable; Affirms IDR at ‘BB-“).

In Fitch’s view, GBR’s risk profile is sufficiently independent of Garanti BBVA’s, reflecting limited direct exposure of the subsidiary to the parent (and its home market), a fairly independent franchise, limited reliance on non-equity funding from the parent and rather strong Romanian regulations to allow GBR’s VR to be rated above Garanti BBVA’ Long-Term s Foreign Currency IDR. Contagion risk usually limits the potential uplift of a subsidiary’s VR from the parent’s Long-Term IDR to a maximum of three notches under their criteria.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– GBR’s IDRs are primarily sensitive to changes in the VR. In our view GBR’s VR and IDR have sufficient rating headroom to absorb potential weakening of key financial metrics.

– Potential contagion risk means that GBR’s VR and IDRs are likely to be sensitive to a multi-notch downgrade of Garanti BBVA’s Long-Term Foreign-Currency IDR

– GBR’s SSR is sensitive to a downgrade of Garanti BBVA’s Long-Term Foreign-Currency IDR or to a weakening in our assessment of GBR’s strategic importance to Garanti BBVA

Factors that could, individually or collectively, lead to positive rating action/upgrade:

– A sustained improvement in the bank’s franchise together with the maintenance of key financial credit metrics could lead to upside for the VR. However, any upgrade would be limited to three notches above Garanti BBVA’s Long-Term Foreign-Currency IDR

– GBR’s SSR will be upgraded if Garanti BBVA’s Long-Term Foreign-Currency IDR is upgraded, or if GBR’s strategic importance for BBVA increases, both of which are unlikely at present.

VR Adjustments

The VR of ‘bb-‘ is below the ‘bb’ implied score due to the following adjustment reasons: business profile

The operating environment score of ‘bb+’ is below the ‘bbb’ category implied score for Romania due to the following adjustment reason: macroeconomic stability (negative).

The capitalisation & leverage score of ‘bb+’ is below the ‘bbb’ category implied score due to the following adjustment reason: risk profile and business model (negative).