Moody's upgrades Raiffeisen's Croatian unit

The rating action is driven by improvements in the Croatian operating environment, reflected by a change in Croatia's macro profile to "moderate" from "moderate-", together with a sustained improvement in RBA's asset quality and profitability, Moody's said in a press release.

The combination of reduced legal risks stemming from claims for consumer compensation for legacy Swiss franc-linked loans, together with the ongoing macroeconomic and financial benefits from Croatia's recent adoption of the euro and entry into the Schengen area of passport-free European travel, prompted the agency to improve its assessment for the macro profile for Croatia.

"More specifically, litigation costs and provisions for legacy Swiss franc-linked loans should decline given that the statute of limitations for lawsuits on the currency clause has expired, while net interest margins have been expanding following a period of significant compression," it said, adding that as a result, the profitability headwinds that Croatian banks previously faced have abated.

Moody's also upgraded the bank's foreign currency long-term senior unsecured debt rating to Baa2 from Baa3, the foreign and domestic currency long-term senior unsecured MTN program ratings to (P)Baa2 from (P)Baa3, its Baseline Credit Assessment (BCA) to ba1 from ba2, and its Adjusted BCA to baa3 from ba1.

The bank's long-term Counterparty Risk Ratings (CRRs) were also upgraded to A3 from Baa1, while RBA's P-2 short-term deposit ratings and short-term CRRs, and its Baa1(cr)/P-2(cr) long- and short-term Counterparty Risk Assessments (CR Assessment) were affirmed.

RBA's reported nonperforming loan ratio improved to 2.1% as of September 2023 from 3.3% at end-2021 and its return on assets was 1.6% for the nine month period to September 2023 from 0.9% over the same period in 2022.

The agency expects that the bank will maintain its currently good funding profile and large liquidity buffers. RBA is predominantly funded by domestic deposits accounting for 75% of the bank's total liabilities as of the end of 2022 and has a modest reliance on market funding mainly due to debt issuances to satisfy its minimum requirement of own funds and eligible deposits (MREL).

The outlook on the bank's long-term deposit ratings is stable while the outlook on the senior unsecured debt rating is positive. "The stable outlook on RBA's long-term deposit ratings reflects the agency's view that the bank's capital will remain strong, despite the recent decline, buffering the bank from unexpected losses, and its financial performance will remain resilient despite an economic slowdown and high inflation," Moody’s said.