January 23 (SeeNews) - Global rating agency Fitch said on Thursday it affirmed the long-term foreign currency Issuer Default Ratings (IDRs) of ProCredit Bank Macedonia (PCBM) at ‘BB+’, and upgraded its Viability Rating (VR) to ‘b+’ from ‘b’.
At the same time the agency lowered ProCredit Bank Serbia's (PCBS) IDR to 'B+' from 'BB-', Fitch said in a statement on its website.
The outlook on both ratings is stable.
Fitch also said in the statement:
“The Long-Term IDRs and Support Ratings of PCBM and PCBS are driven by potential support from their parent, ProCredit Holding AG & Co. KGaA (PCH, BBB-/Stable). In turn, PCH’s ratings are based on Fitch’s view of the support it could expect to receive from its core shareholders when needed, particularly from its international financial institution (IFI) shareholders.
The downgrade of PCBS’s Long-term foreign currency and local currency IDRs to ‘B+’ and ‘BB-’, respectively, as well as its Support Rating follows the downgrade of Serbia’s Long-term IDR and Country Ceiling to ‘B+’ (please see ‘Fitch Downgrades Serbia to ‘B+’ Outlook Stable, dated 17 January 2014, available at www.fitchratings.com). This is because the bank’s foreign currency IDR is constrained by the Country Ceiling
RATING SENSITIVITIES - IDRS and SUPPORT RATINGS of PCBM and PCBS
PCBM's IDRs and Support Ratings are sensitive to multi-notch downgrade in Macedonia's sovereign rating (BB+/Stable) and Country Ceiling (BBB-). A downgrade of Macedonia's Country Ceiling by two notches or more would result in a downgrade of the bank’s Long-term IDRs. A downgrade of Macedonia's Country Ceiling to ‘B+’ or below would also trigger a downgrade of PCBM's Support Rating. Upward movement in the sovereign rating would not trigger an upgrade of PCBM's IDRs in view of PCH’s ratings.
A weakening, in Fitch's view, of the support available to PCBM from PCH would also result in a downgrade to the bank’s IDRs and potentially also the Support Rating, although this is not expected by Fitch at present.
Potential support for PCBS, and hence its IDRs and Support Rating, are constrained by Serbia’s ‘B+’ Country Ceiling. Consequently, further movements in Serbia’s sovereign rating and Country Ceiling would affect the bank’s IDRs.
A weakening, in Fitch's view, of the support available to PCBS from PCH would also result in a downgrade to the bank’s IDRs and potentially also its Support Rating. However, this is not expected by Fitch at present.
KEY RATING DRIVERS - PCBM’S VR
The upgrade of PCBM’s VR to ‘b+’ from ‘b’ reflects the bank’s improved performance in 9M13, consistent and sound asset quality track record that continues to outperform the sector average. Loans overdue by 90 days (PAR90) have ranged from a reasonable 2% to 3% since end-2010, and have strong reserves coverage. The bank’s liquidity is also comfortable. Furthermore, Fitch forecasts GDP growth of 3.2% for Macedonia in 2014, up from 2.7% in 2013, which should support PCBM’s performance and asset quality further.
However, these factors are mitigated by the bank’s only moderate capitalisation (Fitch Core Capital ratio of 11.8% at end-3Q13) in view of a still demanding operating environment, and a high level of foreign currency loans. However, the foreign currency risks are mitigated by Macedonia’s existing currency peg.
RATING SENSITIVITIES - PCBM’S VR
PCBM’s VR could be downgraded in the event of an unexpected and material worsening of the operating environment and a sharp deterioration in asset quality that puts pressure on profitability and erodes capital. A further upgrade of PCBM’s VR is unlikely in the short- to-medium term, given today’s upgrade.
The rating actions are as follows:
PCBM
Long-term foreign currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term local currency IDR: affirmed at 'B'
Viability Rating: upgraded to ‘b+’ from 'b'
Support Rating: affirmed at '3'
PCBS
Long-term foreign currency IDR: downgraded to 'B+' from ‘BB-’; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: downgraded to 'BB-' from ‘BB’; Outlook Stable
Short-term local currency IDR: affirmed at 'B'
Viability Rating unaffected at ‘b’
Support Rating: downgraded to '4' from ‘3’"
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