Fitch Says Affirms Romania's Banca Comerciala Romana at 'BBB', Downgrades Individual Rating to 'D'

Fitch issued the following statement:

"Fitch Ratings has today affirmed Romania-based Banca Comerciala Romana S.A.'s (BCR) ratings at Long-term foreign currency and local currency Issuer Default (IDR) 'BBB' with Negative Outlook. At the same time, Fitch has downgraded BCR's Individual rating to 'D' from 'C/D'. The bank's other ratings are affirmed at Short-term foreign currency IDR 'F3' and Support '2'.

BCR's IDRs and Support Rating are based on the high potential support by its majority shareholder, Austria-based Erste Group Bank AG (Erste Bank, 'A'/Stable), in case of need. The IDRs are constrained by Romania's Country Ceiling 'BBB' and the Outlook on BCR reflects that of the sovereign.

Like its Romanian peers, BCR has been affected by the impact of significantly increased credit impairment charges on its operating profitability and capitalisation, which is reflected in the downgrade of the Individual rating today. BCR's regulatory capital adequacy ratio according to Romanian Accounting Standards equalled 10.38% at end-H109 (12.7% under IFRS). Capitalisation has been strengthened through a subordinated loan from Erste Bank.

However, Fitch believes that capitalization is still just adequate and new capital injections could still be needed to maintain the capital adequacy ratio above 10% and also to provide a buffer against potential risks and pressures on profitability in a deteriorating operating environment. These factors are balanced by BCR's strong domestic franchise, good efficiency and comfortable liquidity. Erste Bank's funding and capital commitment in the context of Romania's IMF stand-by Agreement provides additional comfort.

Loan growth slowed in 2008 and H109 due to lower loan demand in a contracting economy. The proportion of foreign currency (FC) loans remained at 55% at end-H109, and although below the sector average of 58%, they would nevertheless present an asset quality problem should the Romanian leu see a sharp and sustained depreciation. Asset quality markedly deteriorated in 2008 and H109, mainly due to a contracting economy and rising unemployment.

BCR has a strong retail deposit franchise and good access to funding from international banks, international financial institutions and Erste Bank; funding from Erste Bank represents a high 28% of non-equity liabilities at end-H109. Liquidity is comfortable owing to stringent regulatory measures and the bank's liquidity management.

BCR is the largest bank in Romania by total assets with a market share of 20.5% and had the third-largest domestic network of 652 branches at end-H109. BCR provides a wide range of services in banking and also in brokerage, leasing, financial consultancy, asset management, pension funds and various other financial services through its consolidated subsidiaries.

Historically a corporate lender, BCR has increasingly focused on retail and SME lending since Erste Bank's acquisition of a majority stake in October 2006. BCR underwent an integration and development programme in order for it to become a customer-oriented bank in line with Erste Bank standards.

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."