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Rating Action:

Moody's affirms BRD-Groupe Societe Generale local-currency deposit rating with positive and foreign currency deposit rating with stable outlook

28 Aug 2018

Standalone baseline credit assessment (BCA) is upgraded, while adjusted BCA is affirmed

London, 28 August 2018 -- Moody's Investors Service, ("Moody's") has affirmed BRD - Groupe Societe Generale (BRD-SocGen)'s long-term and short-term Baa2/Prime-2 local-currency and Baa3/Prime-3 foreign-currency bank deposit ratings, the Baa1/Prime-2 long-term and short term local and foreign-currency Counterparty Risk Ratings (CRRs) and the Baa2(cr)/Prime-2(cr) long-term and short-term Counterparty Risk Assessment (CRA). Concurrently, Moody's has upgraded the bank's baseline credit assessment (BCA) to ba2 from ba3 and affirmed the ba1 adjusted BCA. The outlook on the bank's long-term local-currency bank deposit rating remains positive, whilst the outlook on the long-term foreign-currency deposit rating remains stable.

The rating action was prompted by BRD-SocGen's improving credit fundamentals following balance sheet clean up and resumed lending on the back of Romania's supportive operating environment.

The full list of the affected ratings and rating inputs can be found at the end of this press release.

RATINGS RATIONALE

- RATIONALE FOR UPGRADING THE STANDALONE CREDIT ASSESSMENT

By upgrading BRD-SocGen BCA to ba2 from ba3, Moody's has taken into account the bank's full-year 2017 and half-year 2018 results evidencing its improving performance in line with our expectations. The upgrade of the BCA reflects the rating agency's view that the supportive operating environment in Romania with Moody's GDP growth forecast of 4.7% in 2018 and 4.2% in 2019 should support the continued improvement of BRD-SocGen's solvency, mainly asset risk and profitability while the capital base is expected to remain strong despite potential increase in its leverage as recently resumed loan book growth continues. Additionally, BRD-SocGen has good liquidity, with low market funding reliance, complemented by ample liquid assets positioning the bank comfortably to fund recently resumed loan growth and providing flexibility against refinancing risk.

As of H1-2018, BRD-SocGen reported a non-performing loan (NPL) ratio of acceptable 7.4%, which holds further room for improvement; it has been persistently declining from its peak of 24.5% as of year-end 2013 through balance sheet clean-up. The bank resumed a modest 2% year-on-year loan book growth since 2016, which we expect to be resumed despite a modest contraction in first half of 2018 due to further balance sheet clean up, on the back of the supportive operating environment in Romania. BRD-SocGen has strong capitalization levels, with a tangible common equity (TCE) over risk weighted assets ratio of 25.2% and a leverage ratio (TCE/Total Assets) of 12.4% as of H1-2018. Furthermore, BRD-SocGen annualized Net Income over Total Assets was at 2.8% as of H1-2018 up from 2.6% reported in 2017 much stronger compared to weak profitability and losses reported in earlier years. Looking ahead we expect the bank's profitability to remain satisfactory.

BRD-SocGen has low market funding reliance at 14% of tangible banking assets, and a comfortable average loan to deposit ratio of 73% as of H1 2018. Furthermore, ample liquid banking assets making up 42% of tangible banking assets as of H1 2018, provide funding flexibility for new lending.

- RATIONALE FOR AFFIRMING THE ADJUSTED BASELINE CREDIT ASSESMENT

Moody's has affirmed BRD-SocGen's ba1 adjusted BCA despite the upgrade of its BCA and taking into account unchanged high parental support assumptions from Societe Generale (SocGen, deposits A1 stable, BCA baa2). However, the one notch upgrade of BRD-SocGen's BCA resulted in a narrowing of the uplift from affiliate support to one notch from two previously. Our unchanged high parental support assumption reflects (1) the bank's 60% majority ownership by SocGen, (2) the high degree of strategic and operational alignment between the bank and the group, and (3) the high brand association between the two.

- RATIONALE FOR AFFIRMING THE LOCAL AND FOREIGN CURRENCY DEPOSIT RATINGS

Moody's has affirmed BRD-SocGen's Baa2/Prime-2 long-term and short-term local currency deposit rating and Baa3/Prime-3 long-term and short-term foreign currency deposit ratings following the affirmation of the bank's ba1 adjusted BCA and the unchanged result of Moody's Advanced Loss Given Failure (LGF) analysis which leads to two notches of rating uplift.

The long-term foreign currency deposit rating continues to be constrained by the foreign currency deposit ceiling applicable in Romania based on the Baa3 sovereign rating.

- RATIONALE FOR THE POSITIVE OUTLOOK ON THE LOCAL-CURRENCY AND STABLE OUTLOOK ON FOREIGN-CURRENCY DEPOSIT RATINGS

The positive outlook on BDR-SocGen's long-term local-currency deposit rating reflects Moody's expectation of further improvement in the bank's credit profile over the next 12-18 months, based on projected continued reduction in problem loans and growth of the loan book on the back of a more favourable operating environment and stronger credit demand in Romania. During the outlook period, the rating agency will assess the lending growth trend and lending segments and the likely impact on asset risk and earnings.

The bank's long-term foreign-currency deposit rating carry a stable outlook is in line with that of the sovereign's rating as it is constrained by it.

-- WHAT CAN CHANGE THE RATING UP/DOWN

An upgrade of BRD-SocGen's local-currency deposit ratings could be prompted by (1) an upgrade of its BCA resulting in an upgrade of its adjusted BCA, based on the parent's current credit profile and provided affiliate support assumptions remain high at least; and/or (2) an increase in uplift resulting from our LGF analysis implying higher protection for senior creditors and a lower loss-given-failure in a resolution. The bank's foreign-currency deposit rating is constrained by the country ceiling for Romania and will be upgraded if the ceiling is raised. An upgrade of BRD-SocGen's BCA could develop from a sustained stronger performance of the bank and mainly an improvement in Moody's overall solvency assessment of BRD-SocGen, and primarily its profitability and its asset risk, while maintaining a strong capital base and a comfortable liquidity profile.

BRD-SocGen'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 that will result in a downgrade of its BCA. A mild weakening of its standalone profile could, however, be offset by affiliate support uplift. Downward pressure on the deposits could also emerge in case of a reduction of the volume of deposits or subordinated instruments in the liability structure of the bank, which could imply a possible higher loss-given-failure in a resolution. The bank's foreign-currency deposit rating will not be affected by a one-notch downgrade of the local-currency deposit rating as it is already constrained at one notch lower owing to the applicable country ceiling constraint.

LIST OF AFFECTED RATINGS

Issuer: BRD - Groupe Societe Generale

..Upgrade:

....Baseline Credit Assessment, upgraded to ba2 from ba3

..Affirmations:

....Adjusted Baseline Credit Assessment, affirmed ba1

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Long-term Counterparty Risk Ratings (Local and Foreign Currency), affirmed Baa1

....Short-term Counterparty Risk Ratings (Local and Foreign Currency), affirmed P-2

....Long-term Bank Deposits (Local Currency), affirmed Baa2 Positive

....Long-term Bank Deposits (Foreign Currency), affirmed Baa3 Stable

....Short-term Bank Deposits (Local Currency), affirmed P-2

....Short-term Bank Deposits (Foreign Currency), affirmed P-3

..Outlook Action:

....Outlook remains Stable(m)

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Arif Bekiroglu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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