Fitch upgrades Banca Transilvania’s rating, affirms three other Romanian banks

Fitch Ratings said it has upgraded the long-term issuer default rating (IDR) of Banca Transilvania (BT) to ‘BB+’ from ‘BB’, a press release informs.

The IDRs of BT are driven by its standalone creditworthiness, as expressed by its VR. The upgrade of the Long-Term IDR of the bank reflects the upgrade of its VR. The Support Rating of ‘5’ and Support Rating Floor of ‘No Floor’ for BT reflect Fitch’s view that sovereign support for senior creditors, while possible, can no longer be relied upon, as for most other commercial banks in the European Union, following the adoption of the Bank Recovery and Resolution Directive.

”The upgrade of BT’s VR factors in the bank’s decreased levels of problem exposures, driven by write-offs, and a track record of solid profitability helping to offset potential capital pressures resulting from aggressive growth (including recent acquisitions) and normalised levels of impairment charges. The upgrade further reflects Fitch’s view that the recent acquisition and subsequent merger with Bancpost will reinforce BT’s franchise in core customer segments and bring scale benefits. Fitch expects that the transaction will have no major impact on BT’s asset quality and funding profile. Negative impact on capitalisation is likely to be limited and temporary,” the release reads.

The rating agency notes BT’s funding profile remains stable and the bank’s deposit franchise is strong (customer deposits accounted for about 93 percent of total funding at end-1Q18). BT’s liquidity cushion is large, comprising a significant amount of Romanian government bonds (31 percent of assets at end-1Q18), which are eligible for the refinancing with the National Bank of Romania. Net of potential cash uses and mandatory reserves, the liquidity buffer was equal to a solid 46 percent of customer accounts.

Fitch has also affirmed the long-term IDRs of Banca Comerciala Romana (BCR) and BRD-Groupe Societe Generale (BRD) at ‘BBB+’ and of UniCredit Bank (UCBRO) at ‘BBB-‘. The outlooks are stable, Fitch said in the statement.

The agency also said BCR’s, BRD’s and UCBRO’s Long- and Short-Term IDRs and Support Ratings are based on potential support available from their respective parents – Erste Group Bank AG (Erste, A-/Stable), Societe Generale S.A. (SG; A/Stable) and Unicredit SpA (UCB; BBB/Stable).

In Fitch’s view, Erste, SG and UCB will continue to have a high propensity to support their Romanian subsidiaries because Romania and the wider central and eastern European region remain strategically important for each of them. This view also takes into account these banks’ majority ownership, the high level of operational and management integration between the banks and their parents, the track record of support to date and the limited size of the subsidiaries relative to their parents, making potential support manageable.

Fitch has also upgraded the Viability Ratings (VRs) of BT to ‘bb+’ from ‘bb’ and of UCBRO to ‘bb’ from ‘bb-‘. BCR’s VR has been affirmed at ‘bb+’.

Upside for Romanian banks’ VRs above the ‘bb’ category is limited given Fitch’s assessment that the operating environment in Romania remains fairly volatile and vulnerable to external shocks, despite a cyclical upswing currently supporting the banks’ financials.