Moody’s upgrades BCR’s ratings to ‘positive’ outlook

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Moody’s has today changed the outlook to positive from stable on Banca Comerciala Romana (BCR) Ba1 long-term local and foreign-currency deposit ratings. According to a press release, concurrently, the rating agency has affirmed the bank’s long-term Ba1 deposit ratings and Baa3 Counterparty Risk Assessment (CRA).

This rating action balances the ongoing improvement in BCR’s standalone credit profile that led to an upgrade of its baseline credit assessment (BCA) to b2 from b3, and reduced uplift from Moody’s Advanced LGF analysis.

The bank’s short-term Not-Prime deposit ratings and its Prime-3 CRA are unaffected by today’s rating action.

According to Moody’s, the affirmation of BCR’s deposit ratings with a positive outlook was driven by the upgrade of the bank’s BCA to b2 from b3 with ongoing upward pressure and by the rating agency’s unchanged high affiliate support assumption from its parent, Austria’s Erste Group Bank AG (Erste; Baa1 stable/Baa1 stable; baa3), resulting in a two-notch rating uplift and a higher adjusted BCA of ba3 from b1 previously;

At the same time, BCR’s deposit ratings with a positive outlook was driven by reducing rating uplift from Moody’s Advanced LGF analysis to one notch from two notches previously and maintaining one notch of rating uplift from government support given its position as the largest commercial bank in Romania.

“The upgrade of BCR’s BCA reflects ongoing improvements in the bank’s asset quality, profitability, capital adequacy and funding structure. The bank’s non-performing loans (NPL) ratio has declined to 14 percent as of end – H1 2016 from a high 25.7 percent as of year-end 2014 owing to the sale and write-off of problem loans, restructuring procedures and increased recoveries as economic conditions improve. Risks stemming from the still large stock of NPLs are mitigated by a high level of coverage, with loan loss reserves standing at 81 percent of the gross loans as of end-H1 2016,” the rating agency points out..

Moody’s notes, that BCR, similar to other Romanian banks, is affected by debt discharge law adopted in late April 2016 that allows mortgage borrowers to opt for a strategic default.

The rating agency understands that so far only limited number of borrowers have decided to make use of this provision of the law.

“However, the full negative impact of the implementation of the law may become clear after several months as more borrowers may decide to default and banks may challenge the retrospective application of the law in courts. According to Erste, in Q2 2016 BCR recognised about EUR 27 million (0.31 percent of gross loans as of year-end 2015) additional provisions stemming from the provisions of the law which were absorbed by the bank’s income,” the release reads.

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