Fitch Affirms ProCredit Bank Romania at 'BB+'; Outlook Stable

The outlooks on the long-term IDRs are stable.

"PCBR's long-term IDRs and support ratings reflect the support it could expect to receive from its largest shareholder, ProCredit Holding AG (PCH, rated 'BBB-'(BBB minus)/Stable Outlook), if required," Fitch said in a release issued late on Thursday.

The bank's individual rating reflects its small size, low profitability, high cost base and the risks presented by its rapid growth. These factors are counterbalanced by the bank being part of the ProCredit network, its close monitoring of risks, group supervision and track record of good asset quality. PCBR is also working to improve its still moderate diversification of funding sources, Fitch said.

"PCBR's low profitability is mainly due to the labour-intensive nature of its business, serving a large number of small customers. Profitability was further weakened in 2007 and H108, due to higher loan impairment charges as a percentage of pre-impairment operating profit."

ProCredit Bank Romania has posted a first-half net profit of 250,000 euro. It ended last year with a net profit of 950,000 euro.

"A rise in the cost of funding due to higher interest rates, in response to higher inflation, the global liquidity squeeze and competitive pressures (mainly on the funding side) also pressured profitability during this period," Fitch added.

Despite an increase in non-performing loans in 2007 and 2008's first half, asset quality is still sound with loans in arrears of more than 90 days representing only 0.8% of gross loans and 332% covered by reserves, according to the rating agency.

Fitch remains concerned about PCBR's rapid loan growth, which could create asset quality problems when the loans season. However, the bank's diversified loan portfolio and close monitoring of risks by the bank's parent, which has experience in central and eastern Europe, helps mitigate concern.

"PCBR is mainly funded by retail deposits from a large number of small depositors. The diversification of the bank's funding sources improved in 2007 and H108 with a greater emphasis on retail funding and borrowed funds from alternative sources."

PCBR has not relied on shareholder funding since end-2006. Fitch eligible capital equalled 13.24% of weighted risk at end-H108 compared with 8.57% in 2007 and 11.85% in 2006. The agency notes that although capitalisation has improved it is still only adequate, given limited scope for internal capital generation due to the bank's low profitability and the potential risks from rapid loan growth.

PCBR, established in 2002, is a development-oriented, small full-service bank specialising in micro-, small- and medium-sized enterprises with a focus on agricultural and rural loans. It has 40 branches and agencies in Romania and forms part of a network of 22 ProCredit banks in central and eastern Europe, Latin America and Africa.