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Rating Action:

Moody's upgrades Banco Comercial Portugues' senior unsecured debt ratings to Baa3; outlook stable

14 Jun 2022

Madrid, June 14, 2022 -- Moody's Investors Service ("Moody's") has today upgraded Banco Comercial Portugues, S.A.'s (BCP) and its supported entities' backed senior unsecured debt and programme ratings to Baa3/(P)Baa3 from Ba1/(P)Ba1, where applicable. At the same time, the rating agency affirmed (1) the bank's Baseline Credit Assessment (BCA) and Adjusted BCA at ba2; (2) the deposit ratings at Baa2/Prime-2; (3) the junior senior unsecured programme rating at (P)Ba2; (4) the dated subordinated debt and programme ratings at Ba3/(P)Ba3; and (5) its preference shares rating at B2(hyb). The outlook on the long-term deposit and senior unsecured debt ratings remains stable.

Moody's has also affirmed the bank's Counterparty Risk (CR) Assessment at Baa2(cr)/Prime-2(cr) and its Counterparty Risk Ratings (CRR) at Baa2/Prime-2.

Today's rating action reflects BCP's announcement of significant issuance of loss-absorbing capital instruments in accordance with regulatory requirements. This will reduce loss severity for senior unsecured creditors and junior depositors, according to Moody's Advanced Loss Given Failure (LGF) analysis, which results into a one notch upgrade of BCP's senior unsecured debt ratings.

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

RATINGS RATIONALE

-- RATIONALE FOR AFFIRMING THE BCA

The affirmation of BCP's BCA at ba2 reflects the bank's improved asset-risk indicators, although nonperforming exposures remain still high, and its modest capital levels. BCP's risk profile is also constrained by the legacy Swiss-franc mortgage loans exposure in its Polish subsidiary (Bank Millennium S.A.; deposits Baa1 stable, BCA baa3) portfolio (around 4% of BCP's consolidated gross loans as of December 2021), which still exposes the bank to high legal risks and will continue to negatively impact BCP's bottom-line profitability in 2022.

Despite a significant reduction over recent years, BCP still holds a large stock of nonperforming assets (NPA) including not only loans but  also a material amount of real estate assets. The bank's NPA ratio declined to 5.9% at end-December 2021 from 7.2% a year earlier, and its nonperforming loans (NPL) ratio stood at 4.7%, still above Portuguese banking system average of 3.5% as of the same date. BCP's asset-quality metrics have not been affected by the economic disruption caused by the pandemic to date. Nevertheless, Moody's expects a slowdown in the pace of reduction of NPAs because of the gradual withdrawal of  public support measures. Moreover, inflationary pressures on both households' purchasing power and corporate margins could also have a bearing upon the bank's asset quality.

BCP's capital levels have also improved over the last years, although they remain modest. Moody's preferred capital measure, tangible common equity (TCE)/risk-weighted assets (RWAs), stood at 8.2% as of the end of December 2021. The bank reported a fully loaded Common Equity Tier 1 (CET1) ratio of 11.7% as of end 2021, down from 12.2% a year earlier and well above its regulatory requirement of 9.16% for 2022. However, this CET1 ratio is still below the bank's target of 12.5% to be achieved by 2024.

BCP's profitability remains weak. The group reported a net profit of €25 million in 2021, down from €208 million a year earlier and equivalent to a net income/tangible assets ratio of 0.03%. This steep decline was mainly driven by significant provisions for legal risks on loans granted in Swiss francs booked in Bank Millennium S.A. Moody's expects that BCP's bottom-line profitability will continue to be negatively affected by the high provisions required on this book. However, in 2022 the group will still be able to offset the losses from its international operations with profits generated from the domestic activities.

BCP's BCA also reflects its low reliance on wholesale funding, although it will increase moderately owing to regulatory requirements.

-- RATIONALE FOR UPGRADING BCP'S SENIOR UNSECURED DEBT RATINGS AND AFFIRMING ITS LONG-TERM DEPOSIT RATINGS

The upgrade of BCP's senior unsecured debt ratings to Baa3 from Ba1 and the affirmation of its long-term deposit ratings at Baa2 reflects: (1) the affirmation of the bank's BCA and Adjusted BCA at ba2; (2) the result from the rating agency's Advanced LGF analysis which now leads to three notches of uplift for the deposit rating and one notch of uplift for the senior unsecured debt rating (from two notches and no uplift previously); and (3) Moody's assessment of a moderate probability of government support for BCP, which now results in an unchanged one notch of uplift for the senior unsecured debt ratings and no uplift for the deposit ratings (from one notch previously).

Today's rating action is predicated on the assumption that BCP will continue to issue debt in order to comply with its Minimum Requirement for own funds and Eligible Liabilities (MREL) by 1 January 2024. MREL requirements for BCP have been set by the Single Resolution Board at 27.29% of the total risk exposure amount. Moody's expects that BCP will successfully complete its medium-term issuance plan under which the bank publicly  committed to issuing up to €2.0 billion of MREL eligible instruments by end 2023.

As a result, Moody's revised advanced LGF analysis now indicates a low loss-given-failure for senior unsecured creditors and extremely low loss-given-failure for depositors, leading to three notches and one notch of uplift from the ba2 Adjusted BCA, respectively.

This revised loss-given-failure has however not translated into a one notch upgrade of BCP's long-term deposit ratings, as the rating agency's assessment of a moderate probability of government support now results into no additional uplift for these ratings (from one notch previously), as they are already positioned at the same level as Portugal's Baa2 government bond rating

-- RATIONALE FOR THE STABLE OUTLOOK

The outlook on BCP's long-term deposit and senior unsecured debt ratings remains stable, reflecting Moody's view that the bank's creditworthiness will be steady over the outlook horizon.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BCP's BCA could be upgraded as a result of a significant decline in the bank's stock of problem assets alongside an improved capital position and profitability metrics.

BCP's BCAs could be downgraded as a result of an increase in the stock of NPAs and/or a worsening in the bank's risk-absorption capacity or profitability.

Any changes to the BCA would likely also affect debt and deposit ratings. These ratings could also be downgraded if the bank was unable to deliver on its funding plan and upgraded in case it would issues debt beyond Moody's current expectations. The bank's senior unsecured debt ratings could also be upgraded in case the bank were to issue a higher-than-expected volume of subordinated instruments.

In addition, if Moody's were to reduce its assumption of government support the bank's deposit ratings could be downgraded.

LIST OF AFFECTED RATINGS

Issuer: Banco Comercial Portugues, S.A.

..Upgrades:

....Senior Unsecured Regular Bond/Debenture, upgraded to Baa3 from Ba1, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, upgraded to (P)Baa3 from (P)Ba1

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Baa2

....Short-term Counterparty Risk Ratings, affirmed P-2

....Long-term Bank Deposits, affirmed Baa2, outlook remains Stable

....Short-term Bank Deposits, affirmed P-2

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Baseline Credit Assessment, affirmed ba2

....Adjusted Baseline Credit Assessment, affirmed ba2

....Junior Senior Unsecured Medium-Term Note Program, affirmed (P)Ba2

....Subordinate Regular Bond/Debenture, affirmed Ba3

....Subordinate Seniority Medium-Term Note Program, affirmed (P)Ba3

....Preferred Stock Non-cumulative, affirmed B2(hyb)

..Outlook Action:

....Outlook remains Stable

Issuer: BCP Finance Bank, Ltd.

..Upgrade:

....Backed Senior Unsecured Regular Bond/Debenture, upgraded to Baa3 from Ba1, outlook remains Stable

..Outlook Action:

....Outlook remains Stable

Issuer: BCP Finance Company

..Affirmation:

....Backed Subordinate Shelf, affirmed (P)Ba3

..No Outlook assigned

Issuer: Banco Comercial Portugues, SA, Macao Br

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Baa2

....Short-term Counterparty Risk Ratings, affirmed P-2

....Long-term Bank Deposits, affirmed Baa2, outlook remains Stable

....Short-term Bank Deposits, affirmed P-2

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

..Outlook Action:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Maria Vinuela
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Maria Cabanyes
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid, 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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