Fitch affirms 4 Romanian banks’ IDRs

Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of Banca Comerciala Romana S.A. (BCR) and BRD-Groupe Societe Generale S.A. (BRD) at ‘BBB+’, UniCredit Bank S.A. (UCBRO) at ‘BBB-‘ and Banca Transilvania S.A. (BT) at ‘BB’, a press release informs. The outlooks are stable.

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

BCR, BRD 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 (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 considers 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 parent groups’ assets, making any support manageable.

BCR and UCBRO are notched once from their respective parents. The Stable Outlook on BCR’s Long-Term Foreign-Currency IDR, which is at the same level as Romania’s Country Ceiling (BBB+), reflects the Stable Outlooks on Romania and on Erste. The Stable Outlook on UCBRO is in line with that on its parent.

BRD could be rated within one notch of its parent, although its Long-Term Foreign-Currency IDR is currently constrained by Romania’s Country Ceiling. The Stable Outlook on BRD reflects that on the Romanian sovereign.

BT’s IDRs are driven by its standalone creditworthiness, as expressed by its VR. The Support Rating of ‘5’ and Support Rating Floor of ‘No Floor’ reflect Fitch’s view that sovereign support, while possible, can no longer be relied upon for BT, as for most other commercial banks in the European Union.

The three banks’ VRs reflect their generally stable credit profiles and reasonable financial performance, driven by the continued balance-sheet cleaning and moderate lending growth.

”The banks’ stocks of legacy impaired loans remain sizeable after a recent clean-up. We expect the banks to continue bad debts off-loading in 2017-2018, being encouraged by the regulatory focus on reduction of the problem assets in the banking sector. (…) We expect the macro trends to remain supportive for the banks’ asset quality and performance in 2017-2018 with moderate credit expansion driven by households, which benefit from loosening of government’s fiscal policy and higher salaries. Demand for new corporate credit is yet to recover. Inflows of new impaired loans are expected to stay moderate, helped by generally conservative risk appetites,” Fitch release reads.

Legislative risks (those linked to Swiss franc loan conversion initiative and the debt discharge law) have now abated for Romanian banks, positively contributing into their developing strategies and financial planning, Fitch remarks.