Baa1 issuer ratings of PKO Bank Hipoteczny S.A affirmed with stable outlook
London, 16 May 2016 -- Moody's Investors Service has today affirmed the A2/Prime-1 long-
and short-term deposit ratings of Powszechna Kasa Oszczednosci
Bank Polski S.A. (PKO BP). Moody's has also
revised the outlook on the long-term deposit ratings to negative
from stable.
This rating action follows a similar action on the ratings of the Polish
sovereign (A2 negative), which Moody's put on negative outlook
from stable on 14 May 2016 ("Moody's changes outlook on Poland's
A2 rating to negative from stable; affirms rating"; https://www.moodys.com/research/--PR_348709).
Today's outlook change indicates that the deposit ratings of PKO
BP, which currently benefit from one notch uplift from government
support, could be lowered in the scenario of a downgrade of the
Polish sovereign.
The rating agency also affirmed the A3 senior unsecured debt rating of
PKO BP and maintained the stable outlook, given that it is positioned
one notch below the ratings of the Polish sovereign.
Moody's has also affirmed PKO BP's A2(cr)/P-1(cr) counterparty
risk assessment, as well as its baa2 baseline credit assessment
(BCA) and baa2 adjusted BCA.
At the same time, Moody's affirmed the ratings of PKO Bank
Hipoteczny S.A. (PKO BH, PKO BP's mortgage bank
subsidiary), namely the bank's Baa1/P-2 long-
and short-term issuer ratings, and the A3(cr)/P-2(cr)
counterparty risk assessment; the outlook on the long-term
issuer ratings remains stable.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
-- Powszechna Kasa Oszczednosci Bank Polski S.A.
The affirmation of PKO BP's A2 deposit and A3 senior unsecured debt
ratings reflects Moody's expectation of continuous moderate support
from Polish authorities, which currently results in a one-notch
uplift, as well as the very low loss-given-failure
for the deposits and low loss-given-failure for the senior
unsecured debt based on Moody's analysis of the bank's liability
structure under its Advanced Loss Given Failure (LGF) analysis.
The change in outlook to negative on the deposit ratings takes into account
that in the case of a downgrade of the sovereign rating, the deposit
ratings of PKO BP could lose the uplift from government support,
which currently results in the bank's deposit ratings being at the
same level as the sovereign rating. At the same time, the
stable outlook on PKO BP's senior unsecured debt rating reflects
the fact that the rating, at A3, is already lower than the
rating of the sovereign and, as such, is unlikely to be affected
in the case of a sovereign downgrade.
PKO BP is the largest commercial bank in Poland with a predominantly retail-oriented
franchise. The affirmation of its baa2 BCA reflects its good asset
quality and provisioning coverage, which have improved in recent
years and stand at 6.6% and 64.6% in Q1 2016,
respectively. At the same time, the bank has been strengthening
its capital levels (following their decline at the time of the acquisition
of the Polish subsidiary of Nordea in 2014), with a common equity
tier 1 of 14.1% and a total capital ratio of 15.4%
as of Q1 2016, which, however, remain somewhat below
similarly rated peers. The profitability of the bank is under pressure,
influenced negatively by the lower interest rate environment and the bank
tax, which was introduced on 1 February 2016. PKO BP's
moderate exposure to Swiss franc mortgages creates a contingent risk for
its asset quality and capital in case of material volatility in the Swiss
franc exchange rate. It also exposes the bank to the uncertainty
from the possible introduction of a forced foreign currency mortgage conversion.
WHAT COULD MOVE THE RATINGS UP/DOWN
Upward pressure on PKO BP's BCA could result from significant strengthening
of its capitalisation, while maintaining the improving trend in
asset quality and coverage ratios, and preserving profitability.
However, at this stage, any such upward pressure would be
negated by the risks relating to a possible foreign-currency mortgages
conversion. Upward pressure on the deposit ratings is unlikely
given that they are already at the same level as the Polish sovereign
rating, while an upgrade of the senior unsecured debt rating could
only result from a higher notching from Moody's Advanced LGF analysis,
which would require significant issuance of subordinated debt instruments.
Downwards pressure on the BCA could result from: (1) deterioration
in capitalisation and/or asset quality; (2) weakening of profitability
beyond Moody's expectations; and (3) a weakening of the bank's
funding profile or liquidity base. In terms of the deposit and
senior unsecured debt ratings, a downward movement is likely in
the event of a downgrade of the bank's BCA, and/or a lower notching
from Moody's Advanced LGF analysis. Additionally, a
weakening of the sovereign rating of Poland would likely result in a decline
in the government support embedded in PKO BP's deposit ratings.
-- PKO Bank Hipoteczny S.A.
The affirmation of PKO BH's Baa1/P-2 issuer ratings follows
the affirmation of the senior unsecured rating of its parent, PKO
BP, which Moody's uses as an anchor point for the ratings
of the subsidiary. PKO BH's ratings are positioned one notch
below the rating of its parent, which reflects: (1) full ownership
by PKO PB, as well as its strategic fit and high operational integration
within the group; and (2) PKO BP's commitment to maintaining the
capital and liquidity of its subsidiary at satisfactory levels,
meeting all regulatory requirements.
The stable outlook on the ratings of PKO BH reflects the stable outlook
on the senior unsecured debt rating of PKO BP.
WHAT COULD MOVE THE RATINGS UP/DOWN
Given its status as a highly integrated subsidiary, PKO BH's issuer
ratings could experience positive pressure as a result of an upgrade in
the senior unsecured debt rating of PKO BP, or in the case that
the parent extends a full and irrevocable guarantee over the liabilities
of its subsidiary.
Similarly, a downgrade of PKO BP's senior unsecured debt rating
would result in a similar action on the issuer ratings of PKO BH.
We could also downgrade the ratings of PKO BH if the relationship between
the subsidiary and its parent changes to an extent that would materially
reduce the level of integration between the two.
LIST OF AFFECTED RATINGS
Issuer: Powszechna Kasa Oszczednosci Bank Polski S.A.
..Affirmations:
.LT Bank Deposits (Foreign Currency and Domestic Currency),
affirmed A2, outlook changed to Negative from Stable
.ST Bank Deposits (Foreign Currency and Domestic Currency),
affirmed P-1
.Senior Unsecured Debt (Foreign), affirmed A3, with
Stable outlook
.Senior Unsecured MTN Program (Foreign), affirmed (P)A3
.Other Short Term Debt Program (Foreign), affirmed (P)P-2
.Baseline Credit Assessment, affirmed baa2
.Adjusted Baseline Credit Assessment, affirmed baa2
.Counterparty Risk Assessment, affirmed A2(cr)/P-1(cr)
..Outlook Actions:
.Outlook, changed to Negative (multiple) from Stable
Issuer: PKO Bank Hipoteczny S.A.
.LT Issuer rating (Foreign Currency and Domestic Currency),
affirmed Baa1 with Stable outlook
.ST Issuer rating (Foreign Currency and Domestic Currency),
affirmed P-2
.Counterparty Risk Assessment, affirmed A3(cr)/P-2(cr)
..Outlook Actions:
.Outlook, remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings 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.
Simone Zampa
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms the A2 deposit ratings of Powszechna Kasa Oszczednosci Bank Polski S.A.; outlook negative
