September 29, 2016 / 5:36 PM / a year ago

Fitch Affirms Three Hungarian Banks' IDRs; Upgrades VRs

(The following statement was released by the rating agency) MOSCOW/LONDON, September 29 (Fitch) Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDRs) of Kereskedelmi es Hitelbank Zrt (K&H) and Erste Bank Hungary Zrt (EBH) at 'BBB' and of CIB Bank Zrt (CIB) at 'BBB-'. The Outlooks on the Long-Term IDRs are Stable. Fitch has also upgraded the banks' Viability Ratings (VR) to 'bb+' from 'bb' (K&H), to 'b+' from 'b' (EBH) and to 'b' from 'b-' (CIB). A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS IDRS AND SUPPORT RATINGS The affirmation of IDRs of K&H, EBH and CIB reflects Fitch's unchanged view of the ability and propensity of their respective parents - KBC Bank (KBC; A-/Positive/a-), Erste Group Bank AG (Erste; BBB+/Stable/bbb+) and Intesa Sanpaolo (Intesa; BBB+/Stable/bbb+) to provide support, in case of need. In Fitch's view, KBC, Erste and Intesa will continue to have a high propensity to support their Hungarian subsidiaries because the central and eastern European region remains strategically important for each of them. However, Fitch has maintained the cap for Hungarian banks' foreign currency ratings at one notch above the sovereign (BBB-) to reflect the country risks they face. In case of a sovereign default these risks could limit the banks' ability to service their debt or their parents' propensity to continue providing support, or both. EBH is rated one notch below Erste. The minority participation of the Hungarian government and EBRD in EBH (each holding 15% stake from July 2016) does not affect Fitch's view of Erste's propensity to support EBH as Erste's commitment to the Hungarian market remains unchanged. The Stable Outlook on EBH reflects that on Erste. K&H could also be rated within one notch of its parent, if country risks allowed. The Stable Outlook for K&H reflects that for the Hungarian sovereign. Fitch maintains a two-notch difference between the ratings of Intesa and CIB, as in our view, there is some uncertainty with respect to Intesa's long-term commitment to the Hungarian market, given CIB's still weak, albeit improving, performance and prospects. The Stable Outlook on CIB's Long-Term IDR is in line with that on Intesa. VRS The upgrades of the banks' VRs reflect the stabilisation of the operating and regulatory environments for Hungarian banks, resulting in decreased asset quality and profitability pressures. This was the main factor driving the upgrade of K&H's VR (bb+), which also reflects the bank's stronger standalone creditworthiness than peers'. The bank is supported by a more balanced business model and lower risk appetite through the cycle, resulting in its more resilient asset quality and profitability. The upgrade of EBH and CIB reflects strengthened capitalisations of both banks following recent capital injections by their respective parents and, in the case of EBH, also takes into account the bank's visible progress in the clean-up of its problem commercial real estate (CRE) portfolio. The VRs of EBH (b+) and CIB (b) remain constrained by the weak asset quality, as their stock of legacy impaired loans remains sizeable, and modest, albeit slowly improving, profitability. All VRs also consider the three banks' comfortable funding and liquidity. Impaired loans were 28.6% of total gross loans (CIB, at end-2015 and these were largely unchanged at end-1H16), 13.4% (EBH, end-1H16) and 9.4% (K&H, end-1H16). These were largely legacy CRE exposures and retail mortgages (originally disbursed mainly in foreign currency), while inflows of new problem loans were limited during 2015-1H16. CIB's high impaired loans ratio also reflects the bank's only moderate loan write-offs and significant loan book contraction to date. K&H's distinctly better loan book quality is also due to the bank's limited exposure to the CRE sector. Reserve coverage of impaired loans is moderate at all three banks (end-1H16: EBH: 68%; K&H: 42%; CIB: 58.7% at end-2015), reflecting high reliance on loan collateral. This, however, should be viewed against largely ineffective foreclosure of residential mortgages. We expect generally stable asset quality trends in 2016-2017 on the back of continued economic growth and subsiding asset quality pressures in the retail segment (as the conversion of Swiss-franc mortgages into forint in 2015 has also provided some debt relief for retail borrowers). The recovering local property market is also supportive of the banks' balance sheet clean-up process. The introduction of a regulatory systemic risk buffer from 2017, which is linked to the volume of distressed CRE exposures, will also motivate banks to accelerate sale-down/write-offs of these exposures over the coming months. EBH and CIB reported positive results at the operating level in 1H16, after several years of heavy losses, reflecting long-term deleveraging and asset quality problems. The recent recovery was driven largely by one-off effects, including net reversals of impairment provisions and a lower bank tax. K&H's performance has been more resilient through the cycle, due to the bank's more stable revenue generation and lower risk costs. It was one of the few banks in Hungary that has remained profitable since the onset of the financial crisis (except for 2014). Future performance of the three banks will largely depend on the success of the problem loans' work-out efforts (in particular at CIB) and business growth in a low-interest rate environment, while the high taxes and regulatory pressures on banks have now abated. We expect credit expansion to remain challenging due to generally muted demand, while loan portfolios continue to amortise despite accelerating new lending in the housing and consumer finance segments. At end-1H16, regulatory common equity Tier 1 ratios stood at 14.4% (EBH; adjusted by a capital increase in July 2016) and 14.1% (K&H); CIB's regulatory total capital ratio was 19.5% at end-1Q16. The capital ratios should be viewed in light of increasing regulatory capital requirements (in line with CRD IV and recent EBA guidelines) and unreserved impaired loans. The latter were particularly large at CIB (around 63% of Fitch Core Capital (FCC) at end-2015 adjusted by capital increase in 1H16), moderate at K&H (around 30% at end-1H16) and lower at EBH (around 19% at end-1H16). Fitch's base case expectation is for the banks' owners to recapitalise them, if required, to ensure compliance with regulatory requirements. Refinancing risks at all three banks are limited due to their stable deposit funding, limited reliance on wholesale funding and sizeable liquidity buffers. At end-1H16, loans/deposits (L/D) ratios fell below 100% for all banks, reflecting their shrinking loan books and repayment of parental funding. The latter was also due to decreased needs in foreign currency funding following the foreign currency mortgage conversion in 2015. RATING SENSITIVITIES IDRS AND SUPPORT RATINGS An IDR upgrade would require (for K&H) an upgrade of the Hungarian sovereign rating or a positive change in Fitch's perception of country risks the Hungarian banks face; (for EBH) an upgrade of the Hungarian sovereign rating or a positive change in Fitch's perception of country risks, coupled with an upgrade of the parent bank; and (for CIB) a parent bank upgrade. The IDRs of EBH and K&H would likely be downgraded if the Hungarian sovereign is downgraded. The IDRs of EBH and CIB would likely be downgraded if their respective parents are downgraded. VRS EBH's and CIB's VRs could be upgraded following a further reduction of problem assets coupled with improved profitability and maintained solid solvency metrics. Upside for K&H is currently limited and will require a substantial improvement in the operating environment and a broadening of the bank's domestic franchise. The banks' VRs could come under pressure in case of a worsening of the operating environment and capital pressure from additional credit losses on legacy problem exposures or new impaired loans. The rating actions are as follows: K&H Long-Term IDR: affirmed at 'BBB', Outlook Stable Short-Term IDR: affirmed at 'F2' Support Rating: affirmed at '2' Viability Rating: upgraded to 'bb+' from 'bb' EBH Long-Term IDR: affirmed at 'BBB', Outlook Stable Short-Term IDR: affirmed at 'F2' Support Rating: affirmed at '2' Viability Rating: upgraded to 'b+' from 'b' CIB Long-Term IDR: affirmed at 'BBB-', Outlook Stable Short-Term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Viability Rating: upgraded to 'b' from 'b-' Contact: Primary Analyst Olga Ignatieva Senior Director +7 495 956 69 06 Fitch Ratings Moscow Valovaya Str, 26, Moscow Secondary Analyst Agata Gryglewicz Associate Director +48 22 330 69 70 Committee Chairperson Artur Szeski Senior Director +48 22 338 62 92 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012389 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below