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Rating Action:

Moody's downgrades Getin Noble Bank S.A.'s deposit ratings to Caa1 from B2

14 May 2019

Ratings are placed on review for downgrade

Frankfurt am Main, May 14, 2019 -- 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 Caa1 from B2, its long-term local and foreign currency Counterparty Risk Rating (CRR) to B2 from B1, its long-term Counterparty Risk Assessment (CRA) to B2(cr) from B1(cr) and its baseline credit assessment (BCA) and adjusted BCA to ca from caa1. Concurrently, the bank's long-term deposit ratings, CRR and CRA have been placed on review for further downgrade. The bank's short-term Not Prime deposit ratings and CRR and Not Prime(cr) CRA are affirmed.

The rating action was prompted by GNB's Q4 2018 financial results, published on 26 April 2018, as well as Moody's assessment of recent developments around the bank -- a potential merger with another bank and the need to attract a new investor - and their implications for GNB's financial fundamentals. 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, thereby further materially increasing risks for the bank's viability.

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 deposit ratings to Caa1 from B2 was driven by (1) the downgrade of its BCA to ca from caa1; and (2) incorporating three notches (two notches previously) of uplift from Moody's Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by the different liability classes in resolution. The implied notching uplift from Advanced LGF Analysis reflects the rating agency's assessment of expected losses for GNB's junior depositors in the event of its failure. This assessment captures Moody's preliminary estimates of potential losses or write-downs of the bank's assets and the loss absorption capacity provided by GNB's equity, senior and subordinated debt, and a small pool of institutional deposits.

The downgrade of GNB's BCA to ca is driven by Moody's expectation that the bank will need extraordinary external capital support to ensure its ongoing viability. Risks to the bank's credit profile continue to increase due to the persistently high asset risk, a significant capital shortfall and volatile liquidity.

GNB reported a large loss in Q4 2018 driven by impairment charges for loans, investments in affiliated companies and write-down of deferred tax assets. Declining revenues, due to shrinking business volumes and higher funding costs further exasperate the bank's performance. The bank's total net loss for 2018 amounted to PLN453 million, translating to a negative return on average assets of 0.81%. Under GNB's capital replenishment plan, its main shareholder provided PLN390 million of equity to the bank over the course of 2018. Whilst this support measure eased the capital pressure on GNB, Moody's believes that the bank's prolonged undercapitalization and reliance on a single shareholder for access to capital elevate risks to the bank's viability. GNB's reported Tier 1 ratio was 9% in December 2018, down from 9.6% in December 2017 and substantially lower than the minimum required level of 11.85% in October 2018.

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 23% of the bank's total loans as of December 2018 (26% a year earlier).

GNB's loan book remains weak with non-performing loan ratio (NPLs, stage 3 loans under IFRS 9) at 15.5% in Q4 2018, slightly up from 15.3% in Q3 2018. On a positive note, GNB's coverage of NPLs by loan loss reserves increased significantly in 2018 to 69% from 44% in December 2017 and is now close to the average levels of the Moody's-rated banks in Poland.

The bank's liquid assets accounted for 12.6% of its total assets in Q4 2018, declining from 18.5% in Q3 2018 due to sizable deposits, mostly institutional, withdrawals amounting to 20% of total deposits in September 2018. GNB's regulatory liquidity coverage ratio (LCR) dropped to 52% in December 2018 from 135% in September 2018, prompting the central bank to provide liquidity support. According to GNB, the liquidity received from the central bank was fully repaid in February 2019 from raising sufficient volumes of additional retail deposits and the bank managed to restore its LCR ratio to 153% in March 2019.

In January 2019, GNB and Idea Bank announced an agreement to merge, subject to receiving regulatory approvals in Q3 2019. Both banks are controlled by the same shareholder and expect to gain from cost reduction and cross-selling as a result of the merger. However, given both banks' capital weakness, Moody's believes that a merger must be accompanied by a material capital injection to lift capitalization to levels in line with expected minimum requirements. While the rating agency understands that the banks are in search of a financial investor willing to recapitalise the merged entity, there is significant uncertainty around whether this plan will materialize, a key factor in downgrading GNB's BCA to ca in addition to the widening gap to minimum capital requirements.

The downgrading of GNB's deposit ratings to Caa1 reflects Moody's current expectations that an extraordinary injection of capital from a new investor will protect depositors from loss, or, in the absence of such new capital, the rating agency's preliminary estimates of the level of losses depositors may be exposed to.

- RATIONALE FOR RATINGS REVIEW FOR DOWNGRADE

The ratings review for further downgrade reflects the continued adverse pressure on the bank's credit profile that could result in higher expected losses for deposits than currently captured in the Caa1 rating. The rating agency expects to conclude its review over the next three months, thereby taking into account any developments that have the potential to affect the bank's short-term viability. In particular, the review will focus on evolutions in relation to the announced merger including a recapitalization, a failure of which will likely increase the risk of resolution measures being applied to GNB, or it being placed into insolvency. In this context, the review will also focus on Moody's assessment of the overall loss potential of GNB's assets against its loss-absorbing capital and liabilities.

-- WHAT COULD MOVE THE RATINGS UP/DOWN

The near-term execution of a credible capital strengthening plan which will allow GNB to achieve compliance with its minimum capital requirements could result in an upgrade of the BCA. However, the benefits of a stronger standalone financial profile is expected to stabilize the Caa1 deposit ratings rather than result in a higher rating level. This is because of the bank's current liability structure which is likely to result in one notch of rating uplift at best under Moody's LGF analysis,

GNB's ratings could be downgraded due to (1) a further deterioration in the bank's capitalisation or lack of the near-term execution of a credible recapitalisation plan, in combination with (2) 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.

..Downgraded:

....Baseline Credit Assessment, downgraded to ca from caa1

....Adjusted Baseline Credit Assessment, downgraded to ca from caa1

..Downgraded and placed on Review for further Downgrade:

....Long-term Counterparty Risk Ratings, downgraded to B2 from B1

....Long-term Bank Deposits, downgraded to Caa1 from B2, outlook changed to Rating under Review from Negative

....Long-term Counterparty Risk Assessment, downgraded to B2(cr) from B1(cr)

..Affirmed:

....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 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

No Related Data.
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