June 28 (SeeNews) - Fitch Ratings said it does not expect any direct rating impact on Banca Comerciala Romana (BCR) from the recently announced need to establish a provision relating to its savings and mortgage bank operations in Romania following a court ruling.
"We expect the announced EUR230 million provision to be close to BCR's 2019 operating profit (prior to the provision), but the bank's deposit and lending franchise, capitalisation and liquidity profile, which underpin BCR's 'bb+' Viability Rating (VR), should not be materially affected, if at all," Fitch said in statement late on Thursday.
BCR's Issuer Default Rating (IDR) continues to reflect a very high support propensity and ability by the bank's parent Erste Group Bank (EGB, A/Stable), it added.
Fitch also said in the statement:
"The 230 million euro (1.1 billion lei) charge is equivalent to 77% of last year's pre-tax profit, which was boosted by exceptionally low loan impairment charges. We expect any small pre-tax profit that could be earned over the provision amount in 2019 to be depleted by the new tax on bank financial assets introduced in 2019, and by regular income taxes. The provision is a one-off event and does not impact our view of the bank's recurring profitability. Strong capitalisation (BCR's Tier 1 ratio was 20.2% at end-2018), which is an important positive rating driver is unlikely to be significantly impacted either.
BCR's underlying earnings should continue to benefit from loan growth (11% yoy at end-1Q19). They remain supported by decreasing and well-covered non-performing loans (5.6% non-performing loans ratio at end-1Q19, over 100% covered by total loan loss allowances). However, loan impairments are likely to rise from 2018 exceptionally low level, as the Romanian economy slows.
The provision announced on 25 June relates to products offered by BCR's savings and mortgage bank subsidiary in Romania, Banca pentru Locuinte (BpL). We do not expect any impact on BCR's business profile from the ruling, as BpL has been largely inactive since 2015. BpL is one of two savings and mortgage banks in the market, along with Raiffeisen Bank Romania's savings and mortgage subsidiary.
The provision follows a ruling of the Romanian High Court against the bank, which overturned an earlier ruling in the bank's favour in a lower court in 2018. The parent bank EGB has indicated an intention to challenge the decision as soon as further details on the court's motivation, which are still undisclosed, emerge.
The court ruling is in respect of the justification of receiving the state-sponsored savings premium by BpL's clients and that BpL has granted the premium also to under-aged and senior customers, who according to the court, were not eligible for receiving it. The bank claims to have acted in accordance with the binding legislation."
(1 euro =4.7224 lei)