Fitch sees stable outlook for CEE banks in 2015

This affected CEE banks either directly, resulting in the negative outlook for the Slovenian banking sector, or indirectly via rating actions on parent banks, the rating agency said in a statement presenting its 2015 Outlook: CEE Banks report.

Fitch Ratings also said in the statement:

"All IDRs driven by Viability Ratings (VRs) are on Stable Outlook, including some where a subsidiary is rated above, or in line with, its parent.

Systemic risks stemming from structural imbalances are gradually receding, but operating environments remain difficult. The combination of low interest rates, stabilising but weak economic growth and more onerous consumer protection/regulatory legislation is weighing on revenues and pushing up costs. However, these pressures should be easily absorbed in better performing sectors (Czech Republic, Poland and Slovakia) or partly compensated by reduced impairment charges (Romania, Bulgaria, Hungary and Slovenia).

Most CEE banks' Long-Term Issuer Default Ratings (IDRs) continue to reflect potential support from parent institutions, which remain strategically committed to the region, with Outlooks aligned accordingly. However, bank ratings are capped two notches above the sovereign in Bulgaria and Romania, and at one notch above in Hungary; in these markets, banks' Stable Outlooks reflect those on sovereign ratings. With the exception of pure development banks, IDRs driven by SRFs are on Negative Outlook.

NPL generation has slowed across the region, but resolution of legacy issues is difficult. Various forms of portfolio clean up in weaker CEE markets (bad bank and recapitalisation in Slovenia, measures on FX mortgages in Hungary, incentives to sell/write off bad debt in Romania) occurred in 2014, and Fitch expects these efforts to continue in 2015. In the longer term, they should result in sounder bank credit profiles; in the near-term they have led to greater volatility in financial metrics and significant costs imposed on bank shareholders.

Apart from Hungary, where there may be a need for further capital injections, capitalisation is adequate/strong and supports stable sector outlooks. Positive changes to funding structures continue with falling shares of parental funding, more balanced loan growth, a focus on customer deposits and efforts to reduce maturity mismatches."