Moody's places Romania-based Raiffeisen Bank's deposit, debt ratings on review for downgrade

The outlook on the BFSR remains stable, the rating agency said in a statement.

This rating action follows Moody's action on Raiffeisen Bank's parent, Raiffeisen Bank International AG (RBI) on December 23 whereby the rating agency downgraded RBI's long-term deposit ratings to Baa1, from A3, and the BFSR to D, equivalent to ba2 BCA, from D+, equivalent to ba1 BCA, and placed them on review for further downgrade.

Moody's also said in the statement:

"RATINGS RATIONALE

LONG- AND SHORT-TERM DEPOSIT AND DEBT RATINGS

Raiffeisen Bank's long-term deposit and debt ratings of Ba1 benefit from a two-notch uplift from its BCA of ba3. This is based on Moody's assumptions of (1) a high expectation of parental support from RBI, given the 99.9% ownership and brand association, and (2) a moderate expectation of systemic support owing to Raiffeisen Bank's significant presence in the Romanian banking system, evident through its market share in customer loans and deposits of 7.5% and 8.3%, respectively, as of year-end 2013.

The review for downgrade reflects the possibility that the one notch uplift from parental support may be removed, and as a result the long-term deposit and debt ratings of Raiffeisen Bank will be lowered, in the event of a further downgrade of RBI's standalone BFSR, which is also under review.

STANDALONE BFSR

Moody's affirmed the BFSR of D-, equivalent to a BCA of ba3, with stable outlook. Raiffeisen Bank's standalone financial strength continues to be supported by (1) adequate funding characterised by broad base of customer deposits, evidenced by the 85% loan-to-deposit ratio as of year-end 2013; (2) satisfactory capitalisation along with good loss-absorption capacity, with Tier 1 ratio of 13.1%; and (3) asset quality better than the average in the Romanian banking sector, with NPL ratio of 8.9%.

While Raiffeisen Bank has relatively limited direct financial linkages and dependence on RBI, amounting to 0.3% of total assets, and 9.4% of total liabilities, an overall deterioration of RBI could have negative spill-over impact on its franchise in Romania. Nevertheless, Moody's assessment is that these risks are already incorporated in the ba3 BCA, which is lower than the ba2 BCA of the parent.

WHAT COULD MOVE THE RATINGS UP/ DOWN

Given the review for downgrade, there is limited upwards pressure on Raiffeisen Bank SA's deposit and debt ratings. The ratings of the bank will largely depend on the outcome of the review on the parent. A further downgrade of RBI's standalone rating and/or a reduction in the rating agency's systemic support assumptions could prompt a downgrade of Raiffeisen Bank SA's deposit and debt ratings. In addition, the bank's ratings could experience downward pressure as a result of substantial weakening in its profitability, erosion of its capital base and/or deterioration in asset quality."