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BUCHAREST (Romania), January 17 (SeeNews) - Fitch Ratings said it has affirmed the long-term issuer default rating (IDR) of Romania's Banca Transilvania at 'BB+', with a stable outlook, and the bank's viability rating (VR) at 'bb+'.
The IDRs of Banca Transilvania are driven by its standalone creditworthiness as reflected in its VR, Fitch said in a press release on Thursday evening.
The VR is underpinned by the bank's strong domestic market franchise, resilient through-the-cycle profitability and adequate capitalisation, Fitch explained.
Fitch also said in the statement:
"Banca Transilvania is the largest bank in Romania with a market share of about 17% of the sector's assets. Its traditional banking business model focuses on serving SMEs entrepreneurs and retail clients with whom it enjoys strong customer relationships. A granular loan book and limited exposure to volatile industries supported its record of solid overall performance through the cycle, while the banking sector largely focused on deleveraging. Fitch's outlook for Romanian banks in 2020 remains stable, with banks well-positioned to weather an expected economic slow-down. However, rising fiscal and external imbalances pose a risk to medium-term economic prospects.
In our view Banca Transilvania's profitability is a rating strength and has remained stronger through the cycle than local peers'. This reflects the bank's resilient interest margins, strong franchise and good cost efficiency. Revenues are generated from lending activity with solid interest margins and the bank's substantial holdings of treasury securities. Operating efficiency remains strong due to tight cost control, while receding integration costs should cushion wage pressures and IT investments in short-term. Loan impairment charges for 1H19 were low, but this is unsustainable and in our view will gradually normalise as the credit cycle turns.
In 1H19 Banca Transilvania reported an operating profit/risk-weighted assets (RWAs) of 4.7% (annualised), similar to that of largest Romanian banks. However the bank's return on equity (ROE) was superior to peers' at 23.1% at end-1H19. We do not expect the bank tax recently introduced in Romania to have a meaningful impact on Banca Transilvania's profitability.
Capitalisation remains solid, supported by healthy internal capital generation and low encumbrance by uncovered impaired loans due to substantial resolution of legacy bad debts. At end-1H19 the bank's Fitch Core Capital (FCC) ratio stood at 17.1%, while regulatory capital metrics were adequate. Strong capital generation should largely offset, in the medium term, a decrease in capital ratios resulting from acquisitions in 2018.
The asset quality of Banca Transilvania reflects its reasonable and diversified lending, with modest concentrations in industries and single names. Its impaired loans ratio continued to fall, to 6.1% at end-1H19 as write-offs and a supportive economic environment helped resolve legacy bad debts. Its coverage remains strong as total provisions cover more than 100% of impaired loans.
Banca Transilvania's funding and liquidity remain a rating strength. The bank remains self-funded with stable and granular customer deposits. Its strong funding profile is reflected in a gross loan/deposits ratio of 62% at end-1H19. In our view the bank's deposit franchise could withstand moderate stress. Banca Transilvania's liquidity is ample, comprising mostly Romanian government bonds and placements with the central bank. Basel liquidity ratios (LCR, NSFR) remain well above regulatory minimum requirements, while liquid assets covered 45% of customer deposits at end-1H19.
SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating of '5' and Support Rating Floor of 'No Floor' for Banca Transilvania reflect Fitch's view that sovereign support for senior creditors, while possible, can no longer be relied upon, as for most other commercial banks in the European Union, following the adoption of the Bank Recovery and Resolution Directive.
IDRS AND VR
Banca Transilvania's IDRs are sensitive to changes in the bank's VR.
The VR could be downgraded if a sharp economic slowdown or idiosyncratic issues lead to marked deterioration in asset-quality and capital metrics. A significant increase in risk appetite, translating into a substantial inflow of new bad debts and capital erosion, could also lead to the VR being downgraded. The upgrade of VR is unlikely in the medium term given constraints of the Romanian operating environment.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the Support Rating and upward revision of the Support Rating Floor would be contingent on a positive change in the sovereign's propensity to support the bank. However, this is highly unlikely, given existing resolution legislation."
(1 euro = 4.7795 lei)