December 16 (SeeNews) - Fitch Ratings said on Friday that it has affirmed the long-term issuer default rating (IDR) of Romanian lender BRD-Groupe Societe Generale [BSE:BRD] at 'BBB+', with a negative outlook.
BRD's Long- and Short-Term IDRs reflect potential support from its majority owner Societe Generale, Fitch said in a press release.
Fitch believes Societe Generale continues to exhibit a high propensity to support its Romanian subsidiary, should support be needed, given its strategic importance. The latter is reflected by BRD's strong domestic market shares and profitability, it added.
"Our view also considers its majority ownership (SG holds 60.2% of BRD's equity), the considerable level of operational and management integration between the parent and subsidiary and the bank's small size relative to SG, which would render any potential support immaterial for the group," the agency said.
Fitch last issued a rating for BRD in December last year, affirming the bank's IDR at 'BBB+', with a negative outlook.
Fitch also said in the statement:
"Country Ceiling Constraint: The extent to which support can be factored into BRD's ratings is constrained by Fitch's assessment of country risks, in particular transfer and convertibility risks, as reflected by Romania's Country Ceiling of 'BBB+'. BRD's support-driven Long-Term IDR is currently at the level of Romania's Country Ceiling, while the Negative Outlook reflects that on the Romanian sovereign's IDR and therefore Fitch's expectation that the Romanian Country Ceiling will move in tandem with the sovereign rating.
Short-Term IDR: In line with Fitch's applicable criteria, BRD's Short-Term IDR of 'F2' is at the lower of the two options corresponding to a 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.
Domestic Systemic Importance; Strong Franchise: BRD is the third-largest bank in Romania. It has a nationwide presence through a wide branch network, a 10% market share by assets at end-1H22, and an established traditional business model. BRD's business mix is biased towards the retail segment (end-3Q22: 65% of net loans). A granular loan book, adequate risk controls, and limited exposure to volatile industries has supported its record of solid performance over recent years.
BRD's Stage 3 loans ratio fell to 2.9% of gross loans at end-3Q22, at the lower end of rated peers, with solid reserve coverage. The bank remains well-capitalised (18.2% bank-only Tier 1 ratio at end-3Q22, broadly in line with the sector average). BRD is self-funded with generally stable and granular customer deposits and maintains solid liquidity.
Rating Sensitivities Factors that could, individually or collectively, lead to negative rating action/downgrade:
BRD's Long-Term IDR and SSR will be downgraded if Romania's Country Ceiling is lowered. Although not expected, the Long-Term IDR and SSR could also be downgraded following a multi-notch downgrade of SG's Long-Term IDR or if BRD becomes less strategically important to its parent.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the bank's Long-Term IDR and SSR would require an upward revision of Romania's Country Ceiling (which is unlikely given the Negative Outlook on the sovereign rating).
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.
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
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.
ESG Considerations
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 entity, either due to their nature or the way in which they are being managed by the entity."
Blue-chip BRD's shares traded 1.48% lower at 13.28 lei ($2.9/2.7 euro) as at 1051 on Friday on the Bucharest Stock Exchange.
(1 euro=4.9206 lei)
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