November 7 (SeeNews) - Moody's Investors Service said on Tuesday it has upgraded the long-term local and foreign-currency deposit ratings of Raiffeisenbank Bulgaria to Baa2 from Baa3 with a stable outlook.
Moody's has also upgraded the bank's short-term local and foreign currency deposit ratings to Prime-2 from Prime-3, the credit rating agency said in a statement.
"RBB's baseline credit assessment (BCA) has been affirmed at ba2 and its adjusted BCA upgraded to ba1 from ba2," it added.
The rating action follows the upgrade of Raiffeisenbank Bulgaria's parent bank - Raiffeisen Bank International AG's BCA to ba1 from ba2 on November 3, and reflects the parent bank's improved capacity to support its Bulgarian branch in case of need.
Moody's also said in the statement:
"RATINGS RATIONALE
The upgrade of RBB's deposit ratings reflects the improved capacity of RBI to provide support to RBB and the rating agency's unchanged view of a high likelihood of affiliate support, which result in one notch uplift in RBB's adjusted BCA, deposit ratings and CR Assessment. The improved ability to support is signaled by RBI's upgrade of its BCA. Moody's assumption of a high likelihood of support is based on RBI's commitment in maintaining its 100% stake in Raiffeisenbank Bulgaria, its strong operational support and RBB's clear association with the Raiffeisen brand.
RBB'S standalone credit profile reflects the bank's improved asset quality and high capital buffers. According to statements prepared by RBB's parent, RBI, RBB's ratio of non-performing loans (NPLs) to gross loans improved to 5.7% as of June 2017 from 11.0% in December 2015, with the bank's ratio of equity to risk weighted assets at 25.6%. The ratings also capture the rating agency's expectation of further reduction in the bank's liquidity buffers as it continues to grow. RBB's ratio of liquid assets to tangible banking assets declined to 36.9% as of year-end 2016 from 43.4% the year before. Further, despite relatively high loan growth, RBB's net interest margin will remain under pressure due to the high competition. RBB's net interest margin contracted slightly to 3.2% from 3.3%.
THE STABLE OUTLOOK
The stable outlook on RBB's ratings is driven by the rating agency's expectation that the bank's financial performance and support considerations will remain broadly unchanged over the outlook period.
WHAT COULD MOVE THE RATINGS UP/DOWN
Further reduction in RBB's problem loans, while maintaining strong capital ratios and improving its core profitability, will likely lead to an upgrade of RBB's ratings. Improved capacity by RBI to provide support to RBB could also lead to an upgrade of RBB's ratings.
A deterioration in the country's macro profile and/or the bank's standalone financial metrics will likely have negative rating implications. Changes in the bank's liability structure, mainly a material increase in its reliance on market funding, may also reduce the uplift provided by Moody's Advanced LGF analysis."
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