Moody's lifts Bulgaria’s Postbank deposit ratings to Baa2, P-2

The agency also lifted the bank's Adjusted Baseline Credit Assessment (Adjusted BCA) to ba1 from ba2, the long-term Counterparty Risk Ratings (CRR) to Baa1 from Baa2 and the long-term Counterparty Risk (CR) Assessment to Baa1(cr) from Baa2(cr), Moody's said in a statement last week.

Additionally, Moody's affirmed the bank's BCA rating at ba2 and its short-term CRRs and CR Assessment at P-2 and P-2(cr), respectively, it said.

The deposit rating actions were driven by the improved BCA of Postbank's parent company, Greece's Eurobank, which was raised to ba1 from ba2, indicating a stronger capacity to provide affiliate support.

Postbank was Bulgaria's fourth-largest lender by assets as of the end of April, the latest central bank data show.

Moody's also said:

"RATINGS RATIONALE

-- RATINGS UPGRADE

The upgrade of Postbank's deposit ratings is driven by the upgrade of Eurobank's BCA to ba1, which signals a stronger capacity of the parent to provide affiliate support in case of need. Moody's assumes a high probability of affiliate support for Postbank from its Greek parent because of Eurobank's 99.99% ownership, their public affiliation and the strategic fit of the Bulgarian operations to the group. Under these assumptions, Postbank's Adjusted BCA, which has been upgraded to ba1, now incorporates one notch of affiliate support uplift.

Postbank's deposit ratings continue to benefit from two notches of rating uplift from the bank's ba1 Adjusted BCA following the application of Moody's Advanced Loss Given Failure (LGF) analysis. For the bank's rated deposits, the Advanced LGF analysis indicates a very low loss severity in the event of the bank's failure reflecting the loss absorption provided by the volume of junior deposits and significant borrowings of eligible debt from Eurobank to comply with its internal minimum requirement for own funds and eligible liabilities (MREL).

There is no further rating uplift from government support given the rating agency's assumption of a low probability of such support given the implementation of the EU's BRRD in Bulgaria.

-- BCA AFFIRMATION

The affirmation of Postbank's ba2 standalone BCA reflects the stability of its financial fundamentals including its robust capitalisation, relatively strong recurring profitability and a growing and low-cost granular deposit base. More specifically and as of the end of 2023, the bank reported a common equity Tier 1 ratio of 19.0%, with net income to tangible assets of 1.7% for the year and with customer deposits dominating its funding base and accounting for 81% of total assets. Postbank's asset quality metrics have improved – with problem loans at 2.5% of gross loans as of end-2023 – as the bank tackled legacy issues, but Moody's considers that the bank's growing share of unsecured consumer lending and high credit growth signal elevated asset risks. Loans grew by 16% in 2023, excluding the acquisition of BNP Paribas Personal Finance's branch in Bulgaria.

-- POSITIVE OUTLOOK

The positive outlook on the long-term deposit ratings is driven by a possible reduction in loss severity in case Postbank maintains a substantial buffer of bail-in-able instruments above its MREL target that would provide additional protection to depositors, in case of failure.

With regards to the bank's standalone assessment, Moody's expects that the bank's solvency and liquidity profile will remain broadly stable over the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Postbank's deposit ratings could be further upgraded in case the bank maintains substantial additional volumes of MREL-related and senior unsecured debt that provides a larger loss-absorbing buffer for depositors.

An upgrade of Postbank's standalone BCA would not directly drive an upgrade of its ratings unless Eurobank's BCA is also upgraded. Postbank's BCA could be upgraded in the event of a significant improvement in Bulgaria's operating environment, if the bank demonstrates a sustainably stronger asset quality performance, or if its recurring profitability improved substantially.

Postbank's ratings could be downgraded because of deteriorating operating conditions, a significant weakening in asset quality, a decline in capital and liquidity buffers, or in case recurring profitability is eroded.

The bank's ratings could also be downgraded in case Eurobank's BCA is downgraded or if Moody's believes the probability of affiliate support has declined.

The deposit ratings could be downgraded because of large changes in the bank's liability structure and a reduction in the loss-absorption buffer for depositors, resulting in a lower uplift from Moody's Advanced LGF analysis."