Ratings placed on review for further downgrade
Frankfurt am Main, October 10, 2018 -- Moody's Investors Service, ("Moody's"),
has today downgraded Getin Noble Bank S.A.'s (GNB) long-term
local and foreign-currency deposit ratings to B1 from Ba3,
its long-term local and foreign-currency Counterparty Risk
Rating (CRR) to Ba3 from Ba2, its long-term Counterparty
Risk Assessment (CRA) to Ba3(cr) from Ba2(cr) and its baseline credit
assessment (BCA) and adjusted BCA to b3 from b2. The bank's short-term
Not Prime deposit ratings and CRR and Not Prime(cr) CRA are affirmed.
The bank's long-term ratings are placed on review for further
downgrade. The outlook on the long-term deposit ratings
has been changed to Rating under Review from Negative.
The rating action was prompted by GNB's half-year 2018 results,
published on 27 September 2018. The bank reported additional impairments
and a large loss, which further weakened its already low capital
adequacy and is a set-back in the bank's efforts to close
the gap to its minimum capital requirements despite a capital injection
received year to date. By downgrading GNB's ratings and placing
them on review for further downgrade, Moody's reflects its rising
concerns that it will take longer for the bank to reduce its capital shortalls
compared to previous expectations by the rating agency. Moody's
expects to close the ratings review following the analysis of the bank's
Q3 2018 financial results including an assessment of the feasibility and
sufficiency of targeted capital strengthening measures.
The full list of the affected ratings can be found at the end of this
press release.
RATINGS RATIONALE
- RATIONALE FOR DOWNGRADING RATINGS
The downgrade of GNB's BCA to b3 from b2 reflects the further weakening
of the bank's capital adequacy following a large loss reported by
the bank in H1 2018, which undermines its capacity to cover sizable
capital shortfalls against the regulatory required minimum levels and
largely offsets the positive impact from a capital injection by its main
shareholder received year to date.
GNB's net loss of PLN163.8 million in H12018 translated to
a negative return on assets of 0.6% (net loss was PLN112.5
in H1 2017) and was driven by PLN88.1 million of impairment charges
on financial instruments, as well as still significant, albeit
declining, loan loss provisions, declining revenues and contributions
to the Polish Banking Guaranty Fund for 2018. As a result,
the bank's Tier 1 ratio declined to 9.2% in Q2 2018
from 9.4% in Q1 2018 and is significantly lower than the
regulatory required minimum level (the shortfall was 3 percentage points
in March 2018). The small change in the capital ratio reflects
the sizable losses but also PLN190 million recapitalisation by the bank's
main shareholder. According to GNB's capital replenishment
plan the bank's main shareholder provided additional PLN100 million
of equity to the bank in Q3 2018 and is expected to inject PLN200 million
in Q4 2018 and 2019. Whilst these support measures ease the capital
pressure on GNB, Moody's believes that given the structural
profitability challenges and the weak asset quality, it will take
longer for the bank to reduce its capital shortalls compared to previous
expectations by the rating agency. GNB's prolonged undercapitalization
and reliance on a single shareholder for access to capital elevate risks
to the bank's viability.
GNB's loan book remains weak with non-performing loan ratio (NPLs,
stage 3 loans under IFRS 9) at 15% and little changed over the
past several quarters. On a positive note, GNB's coverage
of NPLs by loan loss reserves increased significantly in H1 2018 to 66%
from 44% in December 2017 and is now close to the average levels
of the Moody's-rated banks in Poland.
Given its profitability challenges, GNB has been admitted to a program
of the Polish regulator for restoring loss-making banks' long-term
profitability which temporarily exempts the bank from paying a special
bank levy. The bank's net income remains vulnerable to additional
asset impairment charges as well as to potential significant costs arising
from policy measures on Swiss Franc (CHF) mortgages. GNB has one
of the largest exposures to foreign-currency mortgages in Poland,
which accounted for 24% of the bank's total loans as of June 2018
(27% a year earlier).
The downgrade of GNB's deposit ratings was driven by the downgrade of
the bank's BCA to b3 from b2. Consequently, the bank's B1
long-term deposits ratings incorporate (1) its b3 BCA, and
(2) maintaining two notches of rating uplift from Moody's Advanced Loss
Given Failure (LGF) analysis.
- RATIONALE FOR RATINGS REVIEW FOR FURTHER DOWNGRADE
The review of GNB's ratings for further downgrade reflects the still
material downward pressure on the bank's BCA despite the expected
additional capital injections that would account for less than 10%
of the bank's shareholders equity as of end-H1 2018.
Moody's believes that the vulnerabilities of GNB's fundamental
credit profile will remain elevated due to weak revenue generation and
potentially higher impairment charges. The rating agency will conclude
its review following the analysis of the bank's Q3 2018 results,
focusing on (1) capitalization and the feasibility and sufficiency of
targeted capital strengthening measures as well as profitability and asset
quality trends, and (2) the evolution of GNB's funding structure
and its effect on the outcome of Moody's Advanced LGF analysis.
-- WHAT COULD MOVE THE RATINGS UP/DOWN
A credible capital strengthening plan which will allow GNB to achieve
compliance with its minimum capital requirements under the capital replenishment
plan approved by Polish authorities including a material improvement in
asset risk and return to sustained profitability could result in a ratings
confirmation.
A delay or failure to execute capital measures that were significant enough
to achieve near-term compliance with capital requirements as well
as a further deterioration in the bank's capitalisation or profitability
and/or increase in NPLs may result in ratings downgrade.
Further, changes in the bank's liability structure may modify the
amount of uplift provided by Moody's Advanced LGF analysis and lead to
a higher or lower notching from the bank's adjusted BCA, thereby
affecting the deposit ratings.
LIST OF AFFECTED RATINGS
Issuer: Getin Noble Bank S.A.
..Downgraded and placed on review for further downgrade:
....Adjusted Baseline Credit Assessment,
downgraded to b3 from b2
....Baseline Credit Assessment, downgraded
to b3 from b2
....Long-term Counterparty Risk Assessment,
downgraded to Ba3(cr) from Ba2(cr)
....Long-term Counterparty Risk Ratings,
downgraded to Ba3 from Ba2
....Long-term Bank Deposits,
downgraded to B1 from Ba3, outlook changed to Rating under Review
from Negative
..Affirmations:
....Short-term Counterparty Risk Assessment,
affirmed NP(cr)
....Short-term Counterparty Risk Ratings,
affirmed NP
....Short-term Bank Deposits,
affirmed NP
..Outlook Action:
....Outlook changed to Rating under Review
from Negative
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.
Armen L. Dallakyan
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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 Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
