Actions follow conclusion of methodology-related reviews and revision of government support considerations
London, 21 May 2015 -- Moody's Investors Service has concluded its rating reviews on 10
banks in Poland. The reviews, initiated on 17 March 2015,
followed the introduction of the rating agency's revised bank rating
methodology published on 16 March 2015.
In light of the revised banking methodology, Moody's rating
actions generally reflect the following considerations (1) the "Strong
-" macro profile of Poland (A2 stable); (2) the banks'
adequate core financial ratios; (3) the protection offered to senior
creditors by substantial volumes of deposits, and in some cases
also by the subordination of some bail-in-able securities,
as captured by Moody's Advanced Loss Given Failure (LGF) liability
analysis; and (4) Moody's view of a decline in the likelihood
of government support for some institutions.
Among the rating actions that Moody's has taken on the Polish banks
are the following:
- Seven long-term bank deposit ratings upgraded, one
affirmed, one confirmed and one downgraded
- Four short-term bank deposit ratings upgraded, one
affirmed and one downgraded
- One bank senior unsecured debt rating downgraded and one confirmed
- Three baseline credit assessments (BCAs) affirmed and two lowered
Moody's has assigned stable outlooks to the deposit and debt ratings of
the affected banks, and changed to stable from negative the outlook
on the deposit ratings of Powszechna Kasa Oszczednosci Bank Polski S.A.
Moody's has also assigned Counterparty Risk assessments (CR assessments)
to 11 Polish banks, in line with its revised bank rating methodology.
This includes Bank Polska Kasa Opieki S.A., whose
ratings were not on review.
Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_181308
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
Please refer to this link for the initial bank review:
https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005
Please refer to this link for the revised methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662
RATINGS RATIONALE
The new methodology includes several elements that Moody's has developed
to help accurately predict bank failures and determine how each creditor
class is likely to be treated when a bank fails and enters resolution.
These new elements capture insights gained from the crisis and the fundamental
shift in the banking industry and its regulation.
(1) THE "STRONG -" MACRO PROFILE OF POLAND
Polish banks' operations are concentrated domestically, so
they benefit from Poland's supportive macroeconomic environment,
characterised by very high economic and institutional strength,
as well as moderate susceptibility to event risk.
(2) THE BANKS' ADEQUATE CORE FINANCIAL RATIOS
The Polish banks' BCAs (average asset-weighted BCA is baa3) reflect
their adequate core financial ratios, including a moderate level
of problem loans in aggregate, good capital ratios, satisfactory
profitability and good liquidity metrics. However, the banks'
BCAs range widely from baa1 to b1, with the differences reflecting
long-term execution of each bank's business plan, which
has resulted in variations in their performance volatility and financial
fundamentals, and in the strength of their market presence in Poland.
In addition, the banks' BCAs also reflect the different size
of foreign-currency mortgage portfolios, that carry high
contingent credit risk. The latter factor also forces banks to
rely on their foreign parent banks and/or derivative and wholesale markets
for funding (see below for the analytical considerations for the individual
banks covered in this press release).
(3) PROTECTION OFFERED TO SENIOR CREDITORS, AS CAPTURED BY MOODY'S
ADVANCED LGF LIABILITY ANALYSIS
Under its new methodology, Moody's applies its Advanced LGF analysis
to the liability structures of banks subject to operational resolution
regimes. Moody's expects that Poland, as a member of
the European Union, will introduce bank resolution legislation in
line with the EU Bank Recovery and Resolution Directive (BRRD).
Accordingly, Moody's applies its Advanced LGF analysis to
these banks' liability structures. This analysis results
generally in "very low" loss given failure for long-term
deposits, taking into account the banks' substantial volume
of deposit funding. For senior unsecured debt, Moody's
has assessed a "low" loss given failure additionally taking
into account the amount of senior debt and securities more subordinated
to it.
(4) DECLINE IN THE LIKELIHOOD OF GOVERNMENT SUPPORT
Deposit and senior unsecured debt ratings now range from A2 to Ba2.
The lowering of Moody's government support assumptions reflects
the reduced likelihood of support being forthcoming within the context
of the expected implementation of the new bank recovery and resolution
legislation. The negative effect on the banks' ratings from
a decline in the expectation of government support has in most cases been
counterbalanced by the low loss assumptions under Moody's Advanced
LGF framework.
--- BANK SPECIFIC ANALYTIC FACTORS
-- Powszechna Kasa Oszczednosci Bank Polski S.A.
The affirmation of the bank's deposit ratings at A2/Prime-1,
with a change in outlook to stable from negative, reflects the affirmation
of the bank's BCA at baa2 and the Advanced LGF analysis that provides
two notches of uplift from the bank's BCA and offsets reduced government
support assumptions. Powszechna Kasa Oszczednosci Bank Polski benefits
from a large volume of deposits, and limited senior and subordinated
debt, resulting in very low loss given failure. However,
because of the expected implementation of resolution legislation,
Moody's has lowered its government support assumptions for the bank
to "moderate", leading to one notch of uplift from support,
from "very high" and three notches previously.
The downgrade of the bank's senior unsecured debt rating to A3 from
A2 takes into account the Advanced LGF analysis and Moody's reduced
assumption regarding the likelihood of government support. The
Advanced LGF analysis, which also takes into account the bank's
volume of senior debt and the volume of securities subordinated to it
in Moody's creditor hierarchy, results in a low loss given
failure and provides one notch of uplift from the bank's BCA of
baa2. However, this does not fully offset the decrease in
government support assumptions to one notch of uplift from three notches
previously.
The affirmation of the bank's BCA at baa2 reflects the bank's
improved capitalisation and asset quality, and its continued good
profitability levels. The bank's problem loan ratio decreased
to 6.8% at end-March 2015 from 8.1%
at end-March 2014, which is below the Polish average of 7.5%
at end-March 2015, and compares favorably to those of its
rated peers. The bank's problem loan coverage also improved,
to 62.8% at end-March 2015 from 52.5%
at end-March 2014. In addition, the bank benefits
from an improvement in capitalisation (Tangible Common Equity (TCE) at
12.3% of risk-weighted assets at end-2014).
This capital ratio includes the expectation that the bank's shareholders
will confirm in the coming weeks the full retention of the 2014 profit
in line with the recommendation received from the Polish regulator for
banks exposed to the risks of Swiss franc mortgage loans.
-- Bank Zachodni WBK S.A.
The upgrade of the bank's long-term deposit rating to A3
from Baa1 is due to the Advanced LGF analysis that provides two notches
of uplift from the bank's adjusted BCA of baa2 (BCA is baa3) and
offsets reduced government support assumptions. Bank Zachodni WBK
benefits from a large volume of deposits, and limited senior and
subordinated debt, resulting in very low loss given failure.
However, because of the expected implementation of resolution legislation,
Moody's has lowered its government support assumptions for the bank
to "low", leading to no uplift from support, from
"high" and one notch previously.
-- mBank S.A.
The upgrade of the bank's deposit ratings to Baa2/Prime-2
from Baa3/Prime-3 is due to the Advanced LGF analysis that provides
two notches of uplift from the bank's adjusted BCA of ba1 (BCA is
ba2) and offsets reduced government support assumptions. mBank
benefits from a large volume of deposits, and limited senior and
subordinated debt, resulting in very low loss given failure.
However, because of the expected implementation of resolution legislation,
Moody's has lowered its government support assumptions for the bank
to "low", leading to no uplift from support, from
"high" and one notch previously.
The bank's senior unsecured debt rating was confirmed at Baa3,
with a stable outlook, and reflects the Advanced LGF analysis which
provides one notch of uplift from the bank's adjusted BCA of ba1
and offsets the lower likelihood of government support to no uplift from
one notch previously.
-- ING Bank Slaski S.A.
The upgrade of the bank's long-term deposit rating to A3
from Baa1 is due to the Advanced LGF analysis that provides two notches
of uplift from the bank's adjusted BCA of baa2 (BCA is baa3) and
offsets reduced government support assumptions. ING Bank Slaski
benefits from a large volume of deposits, resulting in very low
loss given failure. However, because of the expected implementation
of resolution legislation, Moody's has lowered its government
support assumptions for the bank to "low", leading to
no uplift from support, from "high" and one notch previously.
-- Getin Noble Bank S.A.
The confirmation of the bank's long-term deposit rating of
Ba2 incorporates the lowering of the BCA to b1 and the Advanced LGF analysis
that provides two notches of uplift from the bank's BCA and offsets
reduced government support assumptions. Getin Noble Bank benefits
from a large volume of deposits, and limited senior and subordinated
debt, resulting in very low loss given failure. However,
because of the expected implementation of resolution legislation,
Moody's has lowered its government support assumptions for the bank
to "low", leading to no uplift from support, from
"moderate" and one notch previously.
The lowering of the bank's BCA to b1 from ba3 reflects the bank
ongoing asset-quality and profitability challenges. In Moody's
opinion, Getin Noble Bank continues to carry significant balance-sheet
risk related to the amount of problem loans relative to reserves and capital,
which reached an historical high of 77.7% at year-end
2014. In addition, following a recommendation from the Polish
regulator, the bank included an additional category of loans with
weak evidence of impairments in its overall non-performing loan
ratio, which reached 16% at end-March 2015 from 13.1%
at end- 2014.
-- Bank Millennium S.A.
The upgrade to the bank's long-term deposit rating to Ba1
from Ba2 is due to the Advanced LGF analysis that provides three notches
of uplift from the bank's BCA of b1 and offsets reduced government
support assumptions. Bank Millennium benefits from a large volume
of deposits, some senior and subordinated debt, and Moody's
assumption of higher residual Tangible Common Equity (TCE) at failure
owing to the failure risks associated with a significantly weaker parent,
Banco Comercial Portugues S.A. (deposits B1 under review
for downgrade; BCA caa2), resulting in extremely low loss given
failure. However, because of the expected implementation
of resolution legislation, Moody's has lowered its government
support assumptions for the bank to "low", leading to
no uplift from support, from "high" and two notches
previously.
-- Bank Handlowy w Warszawie S.A.
The upgrade of the bank's deposit ratings to A3/Prime-2 from
Baa3/Prime-3 is due to a combination of the affirmation of the
BCA at baa3, the higher adjusted BCA of baa2 from baa3 reflecting
affiliate support, as well as the Advanced LGF analysis that provides
two notches of uplift from the bank's adjusted BCA. Bank
Handlowy w Warszawie benefits from a large volume of deposits, resulting
in very low loss given failure.
The higher adjusted BCA reflects Moody's view of moderate likelihood
of extraordinary affiliate support from Citibank N.A. (Citi;
deposits A2 under review for upgrade; BCA baa2) in case of need,
given the brand association and common client base. This results
in one notch of uplift for the adjusted BCA of baa2 from the BCA of baa3.
With its ownership of 75% of the bank, Citi considers that
Poland is a growing market with a track record of good profitability and
a well-established presence in the large corporate segment,
which is in line with its business strategy.
The affirmation of the bank's BCA at baa3 reflects the bank's
consistently high capital ratios, strong profitability, and
good liquidity base. The BCA is constrained, however,
by the bank's relatively specialised corporate business profile compared
to higher rated universal peers, which presents intrinsically higher
volatility on profitability and funding.
-- Bank Gospodarki Zywnosciowej S.A.
The upgrade of the bank's deposit ratings to Baa2/Prime-2
from Baa3/Prime-3 is due to the affirmation of the bank's
BCA of ba2 and the Advanced LGF analysis that provides one notch of uplift
from the bank's adjusted BCA of baa3. Moody's estimates
that the bank, after the merger with BNP Paribas Bank Polska (not
rated), benefits from a moderate volume of deposits, resulting
in low loss given failure.
The affirmation of the bank's BCA at ba2 follows the merger of the
bank with BNP Paribas Bank Polska on the 30 April 2015. The banks
have complementary operations and market presence, and Moody's
says that the new combined bank (named Bank BGZ BNP Paribas S.A.)
is likely to benefit in terms of a stronger competitive position in the
market, increased business diversification and an expanded branch
network.
The affirmation of the BCA also reflects Moody's view of the new
combined bank's relatively good capital and liquidity profile,
as well as its low profitability and efficiency compared to the average
of the Polish banking sector. Moody's believes the expected
benefits from the merger, particularly in terms of cost synergies,
will become more visible between 2016 and 2017.
-- Bank BPH S.A.
The downgrade of the bank's deposit ratings to Ba2/Not-Prime
from Baa3/Prime-3 is driven by the lowering of the BCA to ba3 from
ba2, a lower expectation of affiliate support further lowering the
adjusted BCA to ba2 from baa3, and the Advanced LGF analysis that
provides no uplift from the bank's adjusted BCA. Bank BPH
has a modest volume of deposits, resulting in moderate loss given
failure.
The lowering of the bank's BCA to ba3 from ba2 reflects the bank's
high contingent asset and capital risk deriving from its large Swiss franc-denominated
mortgage portfolio (over 55% of total loans at end-March
2015), and its very weak profitability and efficiency compared to
the average of the Polish banking sector. The BCA is supported,
however, by the current level of long-term funding commitment
- until 2021 - from its parent General Electric Capital
Corporation (GECC; A1 stable).
The lower adjusted BCA of the bank reflects the bank's lower BCA
and Moody's lowered assumptions of extraordinary affiliate support
to "moderate", leading to one notch of uplift from support,
from "high" and two notches previously. This change
reflects the GECC's only shareholder (General Electric Company)
announcement, in April 2015, that it plans to dispose of most
of the assets of GECC over the next three years, thus reinforcing
its intention to dispose of Bank BPH, which was already announced
in October 2014.
-- Credit Agricole Bank Polska S.A.
The upgrade of the bank's deposit ratings to Baa1/Prime-2
from Baa3/Prime-3 is due to the Advanced LGF analysis that provides
two notches of uplift from the bank's adjusted BCA of baa3 (BCA
is ba2). Credit Agricole Bank Polska benefits from a large volume
of deposits, and limited senior debt, resulting in very low
loss given failure.
--- ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS
Moody's has also assigned CR assessments to 11 Polish banks.
CR Assessments are opinions of how counterparty obligations are likely
to be treated if a bank fails and are distinct from debt and deposit ratings
in that they (1) consider only the risk of default rather than the likelihood
of default and the expected financial loss suffered in the event of default;
and (2) apply to counterparty obligations and contractual commitments
rather than debt or deposit instruments. The CR Assessment is an
opinion of the counterparty risk related to a bank's covered bonds,
contractual performance obligations (servicing), derivatives (e.g.,
swaps), letters of credit, guarantees and liquidity facilities.
The CR assessments for the 11 Polish banks are three notches above their
adjusted BCAs, and reflect the seniority of the counterparty obligations
and the volume of liabilities subordinated to them under Moody's
Advanced LGF framework.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward rating momentum on the 10 banks' ratings could develop from
(1) a sustained improvement in profitability; (2) materially stronger
capital positions; and (3) a significant reduction in Swiss franc
mortgage loans for the banks that are more exposed to this asset class.
Downward rating pressure could emerge if (1) credit underwriting standards
deteriorate noticeably; (2) current revenue and profitability pressures
intensify; (3) macroeconomic environment deteriorates such that unemployment
rises and the Polish real-estate market weakens; and (4) the
Polish zloty materially weakens against the Swiss franc for the banks
that are more exposed to Swiss franc mortgage loans.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_181308
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Principal methodologies used
• Unsolicited ratings
• Non participating issuers
• [EU only] participation in unsolicited ratings
• Person approving the credit rating
• Releasing office
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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
Yves Lemay
MD-Banking & Sovereign
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 concludes reviews on 10 Polish banks' ratings
