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Rating Action:

Moody's confirms Getin Noble's Caa1 deposit ratings, changes outlook to negative from review

23 Oct 2019

Limassol, October 23, 2019 -- Moody's Investors Service ("Moody's") has today confirmed the Caa1 long-term local and foreign currency deposit ratings of Getin Noble Bank S.A. (Getin) and changed the outlook to negative from ratings under review. Concurrently, the rating agency has also confirmed the bank's B2 long-term local and foreign currency Counterparty Risk Ratings (CRR) and its B2(cr) Counterparty Risk Assessment (CRA). The bank's ca Baseline Credit Assessment (BCA) and Adjusted BCA, its Not-Prime short-term deposit ratings and CRRs and Not-Prime(cr) short-term CRA have been affirmed.

The confirmation of Getin's long-term deposit ratings reflects: 1) Moody's expectation that the bank will agree its capital and profitability recovery plan with the authorities in due course; and 2) the availability of Getin's subordinated debt cushion to largely absorb the estimated overall loss potential under the rating agency's expected loss analysis, should the recovery plan fail to restore the bank's viability. The negative outlook on Getin's long-term deposit ratings reflects the balance of risks for the bank's institutional depositors over the extended implementation period of the recovery plan.

Today's rating actions conclude the review on the bank's long-term ratings initiated on 14 May 2019 and extended on 4 September 2019.

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

RATINGS RATIONALE

SUBORDINATED DEBT WILL BUFFER JUNIOR DEPOSITORS

Moody's confirmation of the bank's Caa1 deposit ratings reflects the agency's expectation that losses to junior depositors will be limited by the outstanding subordinated debt which will broadly cover the bank's capital shortfall according to Moody's expected loss scenario analysis. The Caa1 deposit ratings indicate a recovery value in the range of 90% -95%.

The rating agency acknowledges that Getin's large capital shortfall of around PLN1.5 billion will increase further by year-end as the bank continues to report a loss for the remaining half of the year and phase-in the negative impact from IFRS 9 to its regulatory capital early in 2020. However, according to the agency's central expectation, the bank's credit costs will broadly stabilize at current levels, and therefore its capital shortfall can be largely covered by the PLN1.89 billion of subordinated debt, even when the current provisioning shortfall with domestic rated peers is considered in the overall capital shortfall estimations.

Nevertheless, the rating agency highlights the bank's weak solvency and its expectation that the bank will require external support to continue to operate as reflected by the affirmation of its ca BCA.

Although under its central scenario Moody's expects the bank's asset quality to stabilize, Getin's ratio of nonperforming loans to gross loans worsened to 17.4% as of June 2019 owing both to a declining stock of gross loans and increased delinquencies. The bank's exposure in foreign currency mortgages, mainly swiss franc, although reducing, at 22% of gross loans remains one of the highest among rated Polish banks exposing Getin to significant credit and legal risks. However, with loans loss reserves at 67% of problem loans as of June 2019, Getin has significantly improved its coverage ratio and narrowed the gap with the 73% average coverage ratio for Moody's rated banks in Poland as of December 2018.

Although the bank will continue to benefit from a regulatory liquidity waiver and will only be required to meet 45% of its regulatory reserves requirement until the end of 2020, Getin has largely restored its funding and liquidity following the significant deposit outflows it faced in November 2018 and has broadly normalized its deposit cost to the same level as before its liquidity crisis. Nevertheless, the bank's funding and liquidity remain vulnerable owing to its weak solvency.

Getin's profitability is weak reflecting declining revenues and large operating expenses and high credit costs. In its central scenario, the rating agency anticipates the bank's loss will narrow over the next quarters and that the bank will be marginally profitable in 2020.

Moody's assessment of the bank's ca BCA also incorporates weaknesses in its corporate governance owing to its concentrated ownership which exposes it to key man risk, reflected in a one notch qualitative downward adjustment factored into the BCA. Getin has a high exposure to related entities and has faced losses from these exposures in the past. As of June 2019 exposures to related parties, predominantly an exposure to a related leasing company, accounted for a high 141% of the bank's Tier 1 capital. Further, the bank's dependency on its dominant shareholder for capital limits its capital enhancing options.

THE NEGATIVE OUTLOOK

The negative outlook reflects Moody's view that the balance of risks institutional depositors face is tilted to the downside given the bank's weak solvency and the significant tail risks the bank faces during the implementation of its recovery plan. Getin's exposure to foreign currency mortgages exposes the bank to significant potential losses while depositor confidence remains fragile and outflows could reoccur if there are negative developments with the bank's solvency. Crystallization of these risks could derail the bank from implementing its recovery plan and result in regulatory intervention with losses for junior, corporate deposits, reaching up to 13% according to Moody's expected loss analysis, a loss associated with a Caa2 rating.

WHAT COULD MOVE THE RATINGS UP/DOWN

Successful execution of the bank's recovery plan which will allow Getin to achieve compliance with its minimum capital requirements could result in an upgrade of the BCA. Nevertheless, the benefits of a higher BCA combined with the application of Moody's Advanced Loss Given Failure (LGF) analysis for viable entities instead of the currently applicable expected loss analysis is expected to stabilize the Caa1 deposit ratings rather than result in an upgrade based on the bank's current liability structure. The bank's deposit ratings could be upgraded following an upgrade of its BCA and an increase in its loss absorption buffers subordinated to depositors.

Getin's ratings could be downgraded due to an increase in the bank's quarterly loss eroding capital more than the agency anticipates in combination with Moody's re-assessment of the loss severity faced by senior creditors under an expected loss analysis.

LIST OF AFFECTED RATINGS

Issuer: Getin Noble Bank S.A.

Confirmations:

....Long-term Bank Deposits, confirmed Caa1, outlook changed to Negative from Rating under Review

....Long-term Counterparty Risk Ratings, confirmed B2

....Long-term Counterparty Risk Assessment, confirmed B2(cr)

Affirmations:

....Baseline Credit Assessment, affirmed ca

....Adjusted Baseline Credit Assessment, affirmed ca

....Short-term Counterparty Risk Ratings, affirmed NP

....Short-term Bank Deposits, affirmed NP

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

..Outlook Action:

....Outlook changed to Negative from Rating under Review

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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Melina Skouridou, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
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 Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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