Madrid, March 22, 2018 -- Moody's Investors Service has today affirmed Portugal's Banco Comercial
Portugues, S.A. (BCP) and its supported entities'
long-term deposit and debt ratings at B1. At the same time,
the rating agency has also affirmed (1) the bank's baseline credit assessment
(BCA) and adjusted BCA of b2; (2) its dated subordinated debt rating
of B3; (3) its preference shares rating of Caa2(hyb). The
outlook on the bank's long-term debt and deposit ratings
has been changed to positive from stable. As part of this rating
action, Moody's has also upgraded the bank's long-term
Counterparty Risk Assessment (CR Assessment) to Ba1(cr) from Ba2(cr).
Today's rating action reflects BCP's overall credit profile,
namely the bank's improved asset risk metrics and its enhanced domestic
profitability. Despite these improvements, Moody's
notes that the bank's risk absorption capacity remains weak on the
face of the bank's still significant asset quality challenges.
The positive outlook on BCP's long-term debt and deposit
ratings reflects the positive pressure that could develop on the bank's
ratings if BCP continues to reduce the stock of problematic assets and
improve its loss-absorption capacity over the outlook period.
BCP's short-term deposit ratings of Not Prime, its short-term programme ratings at (P)Not Prime and its short-term CRA of Not Prime(cr) are unaffected by today's rating action.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
-- RATIONALE FOR AFFIRMING THE BCA
The affirmation of BCP's BCA and adjusted BCA at b2 reflects the
bank's improved although still modest credit profile, notably
in terms of asset risk, capital and profitability.
At end-December 2017, BCP reported a non-performing
loan (NPL) ratio of 15.0%, down from 18.1%
a year earlier. Moreover, the bank also has other problematic
exposures such as real estate assets which, if included, raise
the bank's non-performing assets ratio (NPAs; NPLs plus
real estate assets) to around 18%.
Moody's notes positively that the bank has managed to reduce its
domestic NPLs to EUR6.7 billion as of the end of December 2017,
down from EUR8.5 billion at year-end 2016 and below the
EUR7.5 billion target contemplated in its strategic plan,
and we expect this improving trend will continue over the outlook period.
Over the last years, BCP has been able to strengthen its capital
base mainly through continued deleveraging and tapping the markets to
raise capital. At end-December 2017, the bank reported
a phased-in common equity Tier 1 (CET1) ratio of 13.2%
and a fully loaded CET1 ratio of 11.9%, up from 12.8%
and 11.1% a year earlier.
Despite this enhanced solvency levels, Moody's notes that
BCP's loss-absorption capacity remains weak when measured
as the ratio of NPAs to balance-sheet cushions. This ratio
stood at a high 99% as of the end of December 2017. This
is mainly the result of BCP's high stock of problematic assets and
low coverage levels, which stood at 43% for NPLs and 38%
for NPAs.
BCP's profitability also improved as a result of the implementation
of the bank's three-year strategic plan, with both
the Portuguese and international operations positively contributing to
the group's bottom-line result. At end-December
2017, the bank reported a consolidated net profit of EUR290 million,
which is equivalent to a net income to tangible assets ratio of 0.4%
and compares with a net profit of EUR146 million a year earlier.
-- RATIONALE FOR AFFIRMING THE LONG-TERM DEBT AND
DEPOSIT RATINGS AND THE POSITIVE OUTLOOK
The affirmation of BCP and its supported entities' long-term
debt and deposit ratings at B1 reflects: (1) the affirmation of
the bank's BCA and adjusted BCA at b2; (2) no uplift from the
rating agency's Advanced Loss Given Failure (LGF) Analysis; and (3)
Moody's assessment of a moderate probability of government support,
which results into a notch of uplift.
The positive outlook on BCP's long-term debt and deposit ratings
is reflecting Moody's expectation that the bank will continue to
improve its credit fundamentals. In particular, the rating
agency expects further reduction in the stock of NPAs that will alleviate
the pressure on the bank's solvency levels, as well as a continuous
improvement in profitability metrics.
-- RATIONALE FOR UPGRADING THE LONG-TERM CR ASSESSMENT
As part of today's rating action, Moody's has also upgraded the
long-term CR Assessment of BCP to Ba1(cr) from Ba2(cr), to
incorporate one additional notch of uplift coming from a moderate probability
of government support, in line with the rating agency's assumptions
on deposits and senior debt. This consideration reflects Moody's
view that any support provided by governmental authorities to a bank,
which benefits senior unsecured debt or deposits, is very likely
to benefit operating activities and obligations reflected by the CR Assessment
as well, consistent with our view that governments are likely to
maintain such operations as a going concern to reduce contagion and preserve
a bank's critical functions.
The CR Assessment is now driven by the bank's b2 adjusted BCA,
three notches of uplift from the cushion against default provided by subordinated
instruments to the senior obligations represented by the CR Assessment
and one notch of uplift from a moderate likelihood of systemic support.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward pressure on BCP's standalone BCA could be driven by clear evidence
that the bank's risk-absorption capacity is improving,
along with a sustainable recovery in the bank's asset risk profile and
recurring domestic earnings.
Downward pressure could be exerted on BCP's BCA if: (1) the bank
fails to improve its risk-absorption capacity due to asset quality
weakening and/or additional provisioning efforts in excess of its capital
generation capacity; and/or (2) a deterioration in the bank's liquidity
profile.
In addition, any change to the BCA would also be likely to affect
debt and deposit ratings, as they are linked to the standalone BCA.
BCP's senior unsecured debt and deposit ratings could also change as a
result of changes in the loss-given-failure faced by these
securities. In particular, Moody's expects the bank
will need to issue a significant amount of Minimum Requirement for Own
Funds and Eligible Liabilities (MREL) eligible debt in the short to medium
term, which could have positive impact for senior deposit and debt
ratings.
LIST OF AFFECTED RATINGS
Issuer: Banco Comercial Portugues, S.A.
..Upgrade:
....Long-term Counterparty Risk Assessment,
upgraded to Ba1(cr) from Ba2(cr)
..Affirmations:
....Long-term Bank Deposits,
affirmed B1, outlook changed to Positive from Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)B1
....Subordinate Regular Bond/Debenture,
affirmed B3
....Subordinate Medium-Term Note Program,
affirmed (P)B3
....Preferred Stock Non-cumulative,
affirmed Caa2(hyb)
....Adjusted Baseline Credit Assessment,
affirmed b2
....Baseline Credit Assessment, affirmed
b2
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: BCP Finance Bank, Ltd.
..Affirmation:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed B1, outlook changed to Positive from Stable
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: BCP Finance Company
..Affirmations:
....Backed Subordinate Shelf, affirmed
(P)B3
....Backed Preferred Stock Non-cumulative,
affirmed Caa2(hyb)
..No Outlook assigned
Issuer: Banco Comercial Portugues, SA, Macao Br
..Upgrade:
....Long-term Counterparty Risk Assessment,
upgraded to Ba1(cr) from Ba2(cr)
..Affirmation:
....Long-term Bank Deposit, affirmed
B1, outlook changed to Positive from Stable
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: Banco Comercial Portugues, SA, Madeira
..Upgrade:
....Long-term Counterparty Risk Assessment,
upgraded to Ba1(cr) from Ba2(cr)
..No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. 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.
Maria Vinuela
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
