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26 Nov 2009
Limassol, November 26, 2009 -- Moody's Investors Service has today downgraded the ratings of three
Romanian commercial banks in light of its global review of systemic support
indicators for the country's banking system, and also because
of the asset quality challenges faced by Romanian banks in the currently
difficult operating environment. The ratings of the affected banks
are as follows:
i) Banca Comerciala Romana SA (Erste Group)
- Bank financial strength rating (BFSR) of D remains unchanged
with stable outlook.
- Global local currency (GLC) deposit ratings downgraded to Baa2/P-2
with a stable outlook from Baa1/P-2.
- Foreign currency (FC) deposit ratings of Baa3/P-3 remain
unchanged with stable outlook.
ii) BRD -- Groupe Societe Generale
- BFSR of D+ (which maps to a Ba1 baseline credit assessment)
downgraded to D with stable outlook.
- GLC deposit ratings downgraded to Baa2/P-2 with a stable
outlook from A2/P-1.
- FC deposit ratings of Baa3/P-3 remain unchanged with stable
iii) Raiffeisen Bank SA
- BFSR of D remains unchanged with stable outlook.
- GLC deposit ratings downgraded to Baa3/P-3 with stable
outlook from Baa2/P-2.
- FC deposit ratings of Baa3/P-3 remain unchanged with stable
Earlier this year, Moody's published a Special Comment on its review
of the capacity of governments and central banks to support their banking
systems, entitled "Financial Crisis More Closely Aligns Bank
Credit Risk and Government Ratings in Non-Aaa Countries",
available on moody.com.
Consistent with the analytical criteria specified in the Special Comment,
and given Romania's current situation and future prospects,
Moody's has changed the systemic support input for Romanian banks'
ratings to Baa2 from the Aa3 local currency deposit ceiling (LCDC).
The new Baa2 systemic support anchor for Romanian banks is placed one
notch above the Baa3 local currency government debt rating. As
a result of this, the local currency deposit ratings of Romanian
banks have been downgraded, affecting each bank differently.
In the Special Comment, Moody's noted that the appropriate reference
rating for the capacity of a national government to provide support to
banks during a prolonged and widespread crisis would be aligned with or
constrained by the government's own debt rating. However,
Moody's also believes that this rating could be adjusted, usually
positively, to reflect the non-fiscally dependent measures
that many central banks and governments can deploy to support banks.
In deciding whether the systemic support anchor can be higher than the
local-currency debt rating of the national government, Moody's
considered a number of factors for each banking system. These are:
the size of the banking sector relative to the government's resources;
the level of stress in the banking system and in the economy; the
FC obligations of the banking system relative to the government's own
FC resources; political and historical patterns; and the possibility
of any drastic shift in government priorities.
Moody's regards the systemic importance of the Romanian banking
system as moderate given the ratio of banking assets to GDP of around
63%, with a weighted average bank financial strength rating
(BFSR) of D for the rated Romanian commercial banks. The level
of stress in the Romanian banking system has increased due to the deep
recession in the country, with the proportion of non-performing
loans (NPLs) growing steeply in recent quarters, reaching around
13.4% as of August 2009 based on local standards (loans
classified as doubtful and loss).
Moody's notes that the impact of the downturn on the Romanian economy
is significant given the slump on export-oriented sectors and on
local retail demand for goods and services. The rating agency also
notes that the banking system's FC obligations relative to the overall
economy and the central bank's (NBR) FC reserves are quite significant,
mainly in the form of deposits denominated in FC as well as FC borrowings
that banks usually obtain from their European parent banks.
Political and historical evidence suggests that Romania's government
is likely to show moderate support towards its banking system, although
in Moody's opinion its stance towards supporting the systemically important
banks has not changed and is not likely to change in the foreseeable future.
That said, Moody's notes that Romania is currently facing
presidential elections which will determine the stability and functioning
of the country's government. The new government will need
to regain the confidence of international investors. At the same
time, the government will also need to undertake the necessary economic
reforms to ensure the timeliness of a EUR20 billion international aid
package, mainly coming from the International Monetary Fund (IMF)
and the European Commission (EC).
The Baa2 systemic support input for Romanian banks is one notch above
the Baa3 local currency government debt rating. This uplift is
predicated on Moody's view of a "medium" risk of a system-wide
banking crisis as well as a "medium" likelihood of the government
ring-fencing its own fiscal position from the banking system.
In addition, NBR's good regulatory and supervisory framework
provides some added comfort about Romania's ability to provide systemic
support to its banking system. In addition, it should be
noted that all three Romanian banks' deposit ratings continue to
benefit from external support coming from their European parent banks.
The BFSR of D+ for BRD, the majority-owned subsidiary
of the French Group Societe Generale, was downgraded to D in the
wake of the deep economic recession in Romania and its impact on the bank's
asset quality and earnings. The rating action was driven by the
bank's reduced financial flexibility, as reflected in depressed
profitability, deteriorating asset quality and reducing provision
coverage levels. Although BRD remains well capitalised with a capital
adequacy ratio (CAR) of 12.3% as of September 2009,
its net profits for the first nine months of 2009 declined 19%
year-on-year, mainly due to higher provisioning costs
that increased by almost 200%. During 2009, the bank's
ratio of gross NPLs to gross loans has increased significantly based on
local standards (classified as doubtful and loss), excluding any
restructured loans, while the NPL provisioning coverage without
considering any collaterals was relatively low at the end of September
Moody's believes that these challenges are better captured in BRD's
new BFSR of D (mapping to a Ba2 baseline credit assessment) in line with
the BFSR of the other two rated Romanian banks. Despite BRD's
more prudent lending practices over the past few months, its relatively
high exposure to the small and medium-sized enterprises (SMEs)
segment makes its loan book vulnerable to the effects of the economic
recession. Looking ahead, Moody's expects the elevated
credit risk in Romania to continue exerting pressure on all banks'
earnings capacity and capitalisation levels.
Moody's previous rating action for all rated Romanian banks named
above was implemented on 22 June 2009 when the ratings were placed on
review for a possible downgrade.
The principal methodologies used in rating this issuer are "Bank Financial
Strength Ratings: Global Methodology", and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology". These can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Headquartered in Bucharest, Banca Comerciala Romana reported total
assets of RON70.8 billion (EUR16.9 billion) as of the end
of September 2009.
Headquartered in Bucharest, BRD -- Groupe Societe
Generale posted total assets of RON47.9 billion (EUR11.4
billion) as of the end of September 2009.
Headquartered in Bucharest, Raiffeisen Bank had total assets of
RON18 billion (EUR4.3 billion) as of the end of September 2009.
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on three Romanian commercial banks
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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