Fitch affirms Croatia's Erste & Steiermarkische Bank at 'A-'/stable

Fitch has also upgraded the short-term IDR to 'F1' from 'F2' and the bank's viability rating (VR) to 'bb+' from 'bb'. ESB's IDRs are driven by potential support, if needed, from its parent, Erste Group Bank, the global ratings agency said in a press release on Thursday.

“In our view, the parent's high support propensity is underpinned by the strategic importance of Croatia and the wider CEE region for the Erste group,” it added.

The stable outlook on ESB's long-term rating mirrors that on the parent's rating. ESB's short-term rating of 'F1' has been upgraded, because Fitch views shareholder support propensity for the bank as more certain in the near term.

“We have revised up our assessment of the operating environment for Croatian banks to 'bbb-'with stable outlook. It factors in the sovereign's stronger credit profile and better capacity to support market stability, the country's expected resilience to external shocks, reasonable growth opportunities for banks following the country's entry to the eurozone and the expected inflow of sizeable EU funds,” Fitch said.

Banks' asset quality and profitability have improved post-pandemic, while solvency and liquidity metrics were consistently strong.

ESB is the third-largest bank in Croatia and “operates in a relatively small and highly concentrated banking sector,” the credit rading issuer added.

Croatia will join the eurozone as its 20th member on January 1, 2023.