Actions follow the downgrade of the parent bank's ratings
London, 25 June 2012 -- Moody's Investors Service has today taken rating actions on five
subsidiaries of Société Générale (SocGen),
domiciled in the Czech Republic, Romania and Russia -- namely
Komercni Banka (Czech Republic), BRD - Groupe Société
Générale (Romania) and three Russian entities: Rosbank,
DeltaCredit Bank and Rusfinance Bank.
These rating actions follow the recent downgrade of SocGen's long-term
debt and deposit ratings by one notch, to A2 from A1, and
the lowering of SocGen's standalone financial strength by one notch
to C-/baa2 from C-/baa1. The outlook on both the
standalone financial strength and long-term debt and deposit ratings
is stable. For further details on the SocGen downgrade, please
refer to the press release "Moody's downgrades firms with global
capital markets operations," published on 21 June 2012.
Moody's says that today's rating actions conclude the reviews
Moody's initiated on 16 December 2011 for the Russian subsidiaries
-- Rosbank, DeltaCredit Bank and Rusfinance Bank; on 21
February 2012 for Komercni Banka (Czech Republic); and on 16 December
2011 for BRD - Groupe Société Générale
(Romania), with the scope of the review for BRD expanded on 1 June
2012.
The drivers of Moody's rating actions on the five subsidiaries vary
and reflect a combination of different factors, including (i) the
reduction in the financial capacity of SocGen as a support provider,
as indicated by SocGen's recent rating downgrade; (ii) the
rating agency's concerns that group level pressures may impact financial
strength at the subsidiary level; and (iii) the impact of weakening
domestic operating environments.
A full list of the affected ratings is provided at the end of the press
release. For additional information on bank ratings, please
refer to the webpage containing Moody's related announcements http://www.moodys.com/bankratings2012.
RATINGS RATIONALE--- KOMERCNI BANKA (CZECH REPUBLIC)
Today Moody's took the following rating actions on Komercni Banka:
- standalone bank financial strength rating (BFSR) downgraded to
C-/baa1 from C/a3; the outlook on the BFSR is stable
- long-term local and foreign currency deposit ratings of
A2, as well as the Prime-1 short-term local and foreign
currency deposit ratings, confirmed; the outlook on the long-term
deposit ratings is negative
Moody's says that the one-notch downgrade of Komercni Banka's
standalone BFSR to C-/baa1, which compares to the SocGen's
standalone BFSR of C-/baa2, reflects (i) the recent weakening
in the Czech operating environment that Moody's believes will likely
dampen earnings generation and pressure asset quality, and (ii)
Moody's view that the weakening of SocGen's standalone credit
profile heightens the risks posed by the close interlinkages between SocGen
and the Czech subsidiary.
--- WEAKENING OPERATING ENVIRONMENT
Moody's says that the operating environment in the Czech Republic
has weakened, as illustrated by the slowdown in economic output
and further downside risks related to softer export demand from European
trading partners. Real GDP contracted by 0.7% year-on-year
in Q1 2012, and Moody's expects GDP growth of 0% in
2012, compared to 1.7% in 2011, whilst the European
Commission forecasts an unemployment rate of 7.2% in 2012.
Despite Komercni Banka's strong capital position -- with a
13.6% Tier 1 ratio as of end-March 2012 -- and
its solid funding profile, Moody's expects that the economic
slowdown in the Czech Republic will outweigh these mitigating factors.
Specifically, Moody's expects that the weakening operating
environment will constrain earnings and exert pressure on the bank's
problem loans (loans under special review) from the level of 5.7%
posted at year-end 2011.
--- PRESSURES STEMMING FROM LINKAGES WITH PARENT
GROUP
Moody's also considers that the weakening of SocGen's standalone
credit profile poses challenges for Komercni Banka and impacts the Czech
subsidiary's standalone credit strength. Moody's acknowledges
that the domestic Czech financial regulator has tightened the extent to
which Czech banks can be exposed to their parent groups; however,
the rating agency also notes the risk of capital being up-streamed
to the parent, which would directly affect Komercni Banka's
capital cushion. Moreover, in the context of the competitive
Czech banking sector, Moody's considers that there is a risk
that overall group restrictions may impact the extent to which Komercni
Banka can increase the volume of its risk weighted assets and position
its franchise. Moody's also notes that cost reductions at
group level may lead to a decline in operating support that has historically
underpinned the bank's standalone strength.
Moody's recognises that Komercni Banka is an important part of SocGen's
overall franchise, contributing approximately 12.7%
of SocGen's net income in 2011.
SYSTEMIC SUPPORT ASSUMPTIONS AND NEGATIVE OUTLOOK
The deposit ratings of Komercni Banka, one of the largest banks
in the Czech Republic, benefit from two notches of uplift due to
systemic support, reflecting Moody's assessment of the very
high probability of support from the Czech government, in case of
need.
The negative outlook on Komercni Banka's deposit ratings reflects
the pressures on the bank's standalone performance that could lead
to the bank becoming weakly positioned in the C- BFSR category,
resulting in a lower standalone credit assessment of baa2.
WHAT COULD MOVE THE RATINGS UP/DOWN
The negative outlook on Komercni Banka's deposit ratings reflects
Moody's expectation that upward pressure on the bank's ratings
is limited at this stage. Over time, the outlook could be
changed to stable if the bank strengthens its performance metrics and/or
the parent group's standalone profile strengthens.
Further downward pressure could be exerted on Komercni Banka's standalone
and deposit ratings following (i) weaker-than-expected performance
at the group level; and/or (ii) a worse-than-expected
weakening of the operating environment.
RATINGS RATIONALE --- BRD -- GROUPE SOCIETE
GENERALE (ROMANIA)
Today Moody's took the following rating actions on BRD -
Groupe Société Générale (Romania):
- standalone BFSR downgraded to D-/ba3 from D/ba2,
the outlook on the BFSR is negative
- long-term and short-term local currency deposit
ratings downgraded to Baa3/Prime-3 from Baa2/Prime-2;
the outlook on the long-term rating is negative
- long- and short-term foreign currency deposit ratings
of Baa3/Prime-3 confirmed; the outlook on the long-term
deposit rating is negative
Moody's says that the rating actions on BRD reflect (i) the deterioration
of the operating environment in Romania, and (ii) the rapid increase
in the bank's non-performing loans, counterbalanced
by (iii) Moody's view of SocGen's continuing commitment to
the Romanian market.
--- WEAKENING OPERATING ENVIRONMENT
Romania's economic performance has deteriorated, as its high
dependence on external markets, particularly in terms of exports
and private sector capital inflows, renders it vulnerable to the
weakening growth prospects of the euro area. In Q4 2011 and Q1
2012, Romania registered mild quarter-on-quarter GDP
contraction; private consumption and job creation remain subdued.
Although Moody's expects economic performance to improve in the
coming years, growth rates will likely remain well below the levels
reported prior to the 2008 global financial crisis (over 6% GDP
growth per annum), which will render income convergence with wealthier
European countries more challenging, given the significant disparity
in household income at 64% below the EU-27 average.
Moody's expects the macroeconomic weaknesses to affect banking sector
performance through weak credit demand, lower revenues and significant
asset-quality pressures.
--- DETERIORATING ASSET QUALITY
As a reflection of the weakening operating environment, BRD's
non-performing loans (NPLs) have increased significantly,
reaching 16.8% of the total loan portfolio in December 2011
and continuing to increase in the first quarter of 2012. The deterioration
in asset quality reflects the bank's (i) large loan exposure to
the country's weak small and medium-sized enterprises;
and (ii) significant level of foreign-currency lending (mainly
euro-denominated), which accounts for approximately 56%
of the total loan portfolio. Furthermore, as a result of
the increase in non-performing loans, in conjunction with
rapidly rising loan-loss charges and subdued credit growth,
Moody's expects that BRD's profitability will remain under
pressure through 2013. In Moody's view, the risk of
further downward pressure on profitability is also driven by the bank's
need to increase its provisioning coverage of NPLs, currently at
a relatively modest 43%.
Although BRD's current capital buffer provides an adequate loss
absorption capacity, with the Tier 1 capital ratio at 14.5%
as of March 2012, the bank's capitalisation may provide only
a limited cushion, in Moody's view, if the economic
environment in Romania deteriorates more than currently expected.
--- SUPPORT ASSUMPTIONS AND NEGATIVE OUTLOOK
BRD is the second-largest bank in Romania, with market shares
of around 15% in deposits and loans. SocGen holds a 60%
stake in the bank and provides some funding to its subsidiary, mostly
to finance its sizeable foreign-currency portfolio. These
considerations, together with Moody's view of SocGen's
commitment to the Romanian market, underpin Moody's assumptions
of parental and systemic support for the bank, which result in a
three-notch rating uplift from the current ba3 standalone credit
assessment.
The outlook on BRD's ratings is negative, reflecting the possibility
that the pressures on asset quality, profitability and capital,
if sustained, could further weaken the bank's credit profile.
Moody's also notes that BRD has some exposure to the Romania's
state-owned electricity generator Hidroelectrica SA, which
recently filed for insolvency, and these developments could exert
additional pressure on the bank's balance sheet.
WHAT COULD MOVE THE RATINGS UP/DOWN
At this stage, upward pressure on the ratings is limited,
as indicated by the negative outlook on the bank's ratings.
Nevertheless, over the longer- term BRD's ability to
maintain its large market position -- coupled with sustainable profitability
and significant asset quality improvements -- could result in upward
pressure on the ratings.
Downward pressure could be exerted if the bank became loss-making,
which would have a material impact on the sustainability of BRD's
large franchise in Romania and on its capitalisation level. In
addition, further deterioration in the economic conditions in Romania,
leading to an acceleration in non-performing loan formation,
reduced commitment of the parent bank and/or downward pressure on Romania's
ratings could exert downward pressure on BRD's ratings.
RATINGS RATIONALE --- ROSBANK, DELTACREDIT
BANK AND RUSFINANCE BANK (RUSSIA)
SocGen holds an 82.4% stake in Rosbank, which,
in turn, owns (100%) two other Russian subsidiaries:
mortgage lender DeltaCredit and consumer lender Rusfinance.
Today Moody's took the following rating actions on these subsidiaries:
Rosbank:
- long- and short-term local and foreign currency
deposit ratings downgraded to Baa3/Prime-3 from Baa2/Prime-2;
the outlook on the long-term ratings is stable
- standalone BFSR, which was not subject to the review,
unchanged at D/ba2, stable outlook
DeltaCredit Bank:
- long-term local and foreign currency deposit ratings downgraded
to Baa3 from Baa2; the outlook on the long-term ratings is
stable
- short-term foreign currency rating downgraded to Prime-3
from Prime-2
- local currency senior secured debt rating, benefiting from
an explicit and irrevocable guarantee issued by SocGen, downgraded
to Baa2 from Baa1; the outlook on the rating is stable
- standalone BFSR, which was not subject to the review,
unchanged at D/ba2, stable outlook
Rusfinance Bank:
- long- and short-term local and foreign currency
deposit ratings downgraded to Ba1/Not Prime from Baa3/Prime-3;
the outlook on the long-term ratings is stable
- standalone BFSR, which was not subject to the review,
affirmed at E+/b1, with stable outlook
The rating actions on the Russian entities is triggered by the reduction
in the financial capacity of SocGen as a support provider, as indicated
by SocGen's recent rating downgrade.
Moody's says that the one-notch downgrades of the Russian
subsidiaries of SocGen were prompted by Moody's downgrade of SocGen's
standalone ratings to C-/baa2, from which Moody's imputes
rating uplifts for parental support.
SUPPORT ASSUMPTIONS
SocGen's Russian sub-group -- including Rosbank,
DeltaCredit Bank and Rusfinance Bank -- ranks among the 10 largest
banking groups in Russia and holds sizeable shares in certain market segments,
such as mortgage lending and consumer finance. Despite the legal
structure of SocGen's Russian sub-group, whereby Rosbank
operates as an immediate parent for DeltaCredit and Rusfinance,
Moody's incorporates a high assumption of parental support for all
three Russian subsidiaries from SocGen directly. This reflects
the close strategic oversight by SocGen over each bank and the sizeable
financial flows between SocGen and each Russian subsidiary.
Moody's assumption of high parental support is underpinned by (i)
Rosbank's role as a holding entity for all of SocGen's subsidiaries
in Russia, (ii) the alignment of Rosbank's brand logo with
that of SocGen, (iii) the rating agency's assessment of a
material degree of strategic fit of Russian operations to those of the
group, and (iv) SocGen's funding support to its Russian subsidiaries,
mostly through financing a large portion of operations at DeltaCredit
and Rusfinance, which maintain wholesale-funded business
models. Moody's has also observed a history of capital support
from the French parent to the Russian subsidiaries, and assumes
a high likelihood that such support would be provided in the future,
in case of need.
As a result of Moody's assumptions of high parental support,
Rosbank's and DeltaCredit's deposit ratings now incorporate
two-notches uplift to Baa3 (as opposed to three-notches
of uplift previously), from these banks' standalone credit
assessments of ba2, whereas Rusfinance's deposit ratings now
incorporate three notches of uplift to Ba1 (as opposed to four-notches
previously), from the bank's standalone credit assessment
of b1.
RUSSIAN SUBSIDIARIES --- WHAT COULD MOVE THE RATINGS
UP/DOWN
At this stage, near-term upward rating pressure on Rosbank
and DeltaCredit from either a strengthening of standalone financial metrics
and/or increases in uplift from parental support assumptions remains limited.
In the case of Rusfinance Bank upward rating pressure could be triggered
by (i) diversification and enhancement of the bank's funding base,
resulting in lower interest expense levels over the longer term,
and (ii) its ability to minimise reliance on the car-financing
segment through diversification into other lending segments.
A reduced commitment of the parent bank towards its Russian subsidiaries,
or a significant deterioration in asset quality, reduced profit
generation and/or weakening liquidity positions could exert downward pressure
on the banks' ratings.
DELTACREDIT'S LOCAL-CURRENCY SENIOR SECURED DEBT
The long-term rating assigned to DeltaCredit Bank's local
currency debt, which benefits from an explicit and irrevocable guarantee
issued by SocGen, is based on the standalone credit assessment of
its guarantor. Accordingly, the downgrade of DeltaCredit
Bank's senior secured debt to Baa2, with a stable outlook,
from Baa1, reflects the lowering of the guarantor's standalone
credit assessment to baa2, from baa1 previously.
LIST OF AFFECTED RATINGS
..Issuer: Komercni Banka, a.s.
Long-term local and foreign-currency deposit ratings confirmed
at A2, with negative outlook
Short-term local- and foreign-currency deposit ratings
of Prime-1 confirmed
Bank financial strength rating downgraded to C-/baa1 from C/a3,
with stable outlook
..Issuer: BRD -- Groupe Société
Générale
Long- and short-term local-currency deposit ratings
downgraded to Baa3/Prime-3 from Baa2/Prime-2, with
negative outlook
Long- and short-term foreign-currency deposit ratings
confirmed at Baa3/Prime-3, with negative outlook
Bank financial strength rating downgraded to D-/ba3 from D/ba2,
with negative outlook
..Issuer: Rosbank
- Local and foreign currency deposit ratings downgraded to Baa3/Prime-3,
with stable outlook, from Baa2/Prime-2
- Local currency senior unsecured debt rating downgraded to Baa3,
with stable outlook, from Baa2
- Standalone BFSR of D/ba2 unchanged, stable outlook
..Issuer: DeltaCredit
- Long-term local and foreign currency deposit ratings downgraded
to Baa3, with stable outlook, from Baa2, short-term
foreign currency deposit rating downgraded to Prime-3 from Prime-2
- Local currency senior secured debt rating downgraded to Baa2,
with stable outlook, from Baa1
- Standalone BFSR of D/ba2 unchanged, stable outlook
..Issuer: Rusfinance Bank:
- Local and foreign currency long-term deposit ratings downgraded
to Ba1 from Baa3; stable outlook
- Local and foreign currency short-term deposit ratings
downgraded to Not-Prime from Prime-3
- Local currency senior unsecured debt rating downgraded to Ba1
from Baa3; stable outlook
- Standalone BFSR affirmed at E+/b1, stable outlook
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology, published in February 2007 and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings:
Global Methodology, published in March 2012. Please see the
Credit Policy page on www.moodys.com for a copy of these
methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The ratings of rated entity BRD -- Groupe Société Générale
were initiated by Moody's and were not requested by these rated entities.
Rated entity BRD -- Groupe Société Générale
or its agent(s) participated in the rating process. This rated
entity or its agent(s)provided Moody's access to the books,
records and other relevant internal documents of the rated entity.
The ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating(s) for BRD and Komercni
Bank are as follows: parties involved in the ratings, public
information, and confidential and proprietary Moody's Investors
Service information.
Information sources used to prepare the rating(s) for Rosbank, Deltacredit
and Rusfinance Bank are as follows: parties involved in the ratings,
parties not involved in the ratings, public information, and
confidential and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
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uses in assigning the ratings is of sufficient quality and from sources
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Olga Ulyanova
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
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Yves?J?Lemay
MD - Banking
Financial Institutions Group
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Moody's takes actions on five subsidiaries of Soci?t? G?n?rale in Central Europe and Russia
