Fitch has simultaneously downgraded the bank's individual rating to 'D/E' from 'D'.
Fitch issued the following statement:
"Fitch Ratings has today affirmed the Long-term foreign and local currency Issuer Default Ratings (IDRs) of ProCredit Bank (Romania) (PCBR) at 'BB+'. The bank's Short-term foreign and local currency IDRs are affirmed at 'B' and its Support Rating is affirmed at '3'. The Outlooks on the Long-term IDRs are Stable. Fitch has simultaneously downgraded the bank's Individual Rating to 'D/E' from 'D'.
PCBR's Long-term IDRs and Support Rating reflect Fitch's view of the potential support that would likely be forthcoming, in case of need, from its main shareholder, ProCredit Holding AG (PCH, rated 'BBB-'/Stable Outlook). PCH's IDRs and Support Rating in turn reflect Fitch's view of the high potential support available from its owners, and in particular from a group of international financial institutions (IFIs) which are key voting shareholders.
The downgrade of the bank's Individual Rating reflects its limited internal capital generation capability which led to operational losses during H109. The Individual Rating also captures its small size and high cost base. These factors are counterbalanced by the bank being part of the ProCredit network, its close monitoring of risks and group supervision, and well-diversified lending and funding.
PCBR's high cost base, due to its labour-intensive micro lending business and a lack of scale, and the continued rise in the cost of funding led to pre-impairment operating losses in H109, and the bank recorded net EUR5m losses in H109 as a result of higher loan impairment charges. PCBR mainly lends in Romanian lei to micro-, small- and medium-sized enterprises with a focus on agricultural and rural loans. Despite an increase in NPLs, asset quality remains better than the Romanian sector average, although it has markedly deteriorated. Loans in arrears by more than 30 days represented 3.34% of gross loans at end-H109, which were comfortably covered by reserves.
PCBR is not reliant on shareholder funding and mainly funded by a large number of small depositors and IFIs. PCBR's total regulatory capital ratio, which has declined as a result of the losses, was 13.01% at end-H109. Shareholders increased share capital by EUR3m in October 2009 in order to improve capitalisation and maintain the bank's lending capacity. Fitch believes that additional cash capital injections will likely be needed given limited internal capital generation capability due to weak operational efficiency and potential asset-quality problems in a worsening operating environment.
PCBR provides banking services though 43 branches and agencies in Romania. It is part of a global network of 22 ProCredit banks in central and eastern Europe, Latin America and Africa.
In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs."
