March 31 (SeeNews) - Fitch Ratings said that it has affirmed the long-term issuer default rating (IDR) of Romanian lenders BRD-Groupe Societe Generale [BSE:BRD] and Banca Comerciala Romana (BCR) at 'BBB+', while revising their outlook from negative to stable.
The affirmation of BCR’s and BRD’s IDRs and Shareholder Support Ratings (SSRs) reflects Fitch’s view that the banks’ shareholders, Austria’s Erste Group Bank and France’s Societe Generale, respectively, will continue to support their subsidiary banks, the global ratings agency said in a press release on Thursday.
The rating actions involving the two lenders follow Fitch’s revision of Romania’s outlook from negative to stable and the affirmation of its IDRs at 'BBB-'.
Fitch also said in the statement:
“Country Ceiling Constrains Ratings: BCR's and BRD's Long Term IDRs remain capped by Romania's Country Ceiling, which captures transfer and convertibility risks that may limit the ability of BCR and BRD to use the support from their parent banks. Absent of these constraints, BCR would be rated one notch below the parent and BRD would be equalised with the IDR of its parent. The Stable Outlooks on both banks mirror that on the Romanian sovereign rating.
BCR's Strategic Importance: We believe that Erste's propensity to support BCR is high, because of BCR's strategic role in the group, high reputational risks for the parent and its international franchise in case of BCR's default, and high level of integration between the parent and the subsidiary.
Resolution Strategy for BRD: We believe that SG would have very strong propensity to provide support to BRD, given the inclusion of BRD in SG's single-point-of-entry resolution group and considerable reputational risk for SG from a default at BRD. Any required support for BRD would be immaterial relative to the parent's ability to provide it, given BRD's small relative side in the group's total assets.
Short-Term IDRs: BCR's and BRD's Short-Term IDRs of 'F2' are the lower of the two options corresponding to their Long-Term IDR of 'BBB+', as the latter is driven by shareholder support and constrained by the Country Ceiling. We do not consider transfer and convertibility risks to be materially lower in the short term relative to the long term.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
BCR's and BRD's IDRs and SSRs could be downgraded if the Romanian Country Ceiling was lowered.
BCR's and BRD's IDRs and SSRs could be also downgraded if their respective parents' IDRs were downgraded by more than one notch.
An evidence of weakened propensity to support BCR or BRD by their respective parents would also lead to a downgrade, although we view this as unlikely.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of BCR's and BRD's IDRs and SSRs would require an upward revision of Romania's Country Ceiling.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Fitch has affirmed BCR's debt ratings. BCR's senior non-preferred (SNP) debt is rated in line with its Long-Term IDR, reflecting our current expectations that BCR will predominantly use SNP and more junior debt to meet its resolution buffer requirements, and that in total these are likely to exceed 10% of risk-weighted assets (RWA).
BCR's SP debt is rated in line with its Long-Term Local-Currency IDR. The senior preferred (SP) debt rating is constrained by country risks as reflected by the Country Ceiling.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The SNP and SP debt ratings are primarily sensitive to a change in BCR's IDR.
The SNP debt could be downgraded by one notch and rated below BCR's IDR, if it became clear that SNP and more junior debt would not sustainably exceed 10% of the Romanian resolution group's RWA.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
BCR's Long-Term IDR is capped by the Romanian Country Ceiling and therefore linked to the Romanian sovereign Long-Term IDR. BCR's IDRs, SSR and senior debt ratings are driven by support from Erste and therefore linked to the latter's IDR.
BRD's Long-Term IDR is capped by Romania's Country Ceiling and therefore linked to the Romanian sovereign Long-Term IDR. BRD's IDRs and SR are driven by support from SG and therefore linked to the latter's IDR.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entities, either due to their nature or the way in which they are being managed by the entities.”
Blue-chip BRD's shares traded 1.18% higher at 12 lei ($2.6/2.4 euro) as at 1146 CET on Friday on the Bucharest Stock Exchange.
(1 euro=4.9491 lei)
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