December 21, 2017 / 4:16 PM / a year ago

Fitch Revises Millennium bcp's Outlook to Positive; Affirms at 'BB-'

(The following statement was released by the rating agency) BARCELONA, December 21 (Fitch) Fitch Ratings has revised Banco Comercial Portugues, S.A.'s (Millennium bcp) Outlook to Positive from Stable while affirming the bank's Long-Term Issuer Default Rating (IDR) at 'BB-'. A full list of rating actions is at the end of this rating action commentary. The rating actions are part of a periodic portfolio review of Portuguese banks rated by Fitch and follow the upgrade of Portugal's sovereign rating (see "Fitch Upgrades Portugal to BBB" dated 15 December 2017 at KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The Positive Outlook reflects Fitch's expectations that Millennium bcp will continue to reduce its problem assets (non-performing loans (NPLs) and foreclosed assets) in the next 18-24 months, which should gradually lower impairment charges and result in a meaningful improvement of internal capital generation. The implementation of the bank's problem asset reduction plan is expected to benefit from an improved operating environment in Portugal. The ratings of Millenium bcp are driven by its weak, albeit improving, asset quality that puts pressure on its operating profitability and internal capital generation. The ratings also factor in the bank's vulnerable capitalisation, as well as stable funding profile. Pre-impairment profitability has progressively improved in the past four years but the bank's earnings generation is still dented by large provisions for problem assets. We expect impairment charges to gradually decrease and this to translate into higher operating profitability. The bank's operating efficiency is better than domestic peers' and should benefit from expected lower funding costs. Millennium bcp's asset quality indicators remain weak, reflecting the bank's sizeable stock of problem assets, although the bank has made good progress in reducing it. At end-September 2017 the bank's NPL ratio (as per European Banking Authority definition) declined to 15.9% (from 19% a year earlier) but remains high by international standards. Reserve coverage (42%) also improved but remained low compared with international peers, resulting in a high reliance on collaterals and guarantees. In addition, the bank is exposed to risks arising from its holdings of foreclosed assets and investments in corporate restructuring funds. The bank's capital position has been strengthened in 2017 by a EUR1.33 billion equity increase and risk-weighted asset (RWA) reduction. At end-September 2017, the fully loaded common equity Tier 1 (CET1) ratio stood at 11.7%. However, capitalisation remains vulnerable to additional asset quality shocks as its unreserved NPLs and foreclosed assets still represented a high 1.4x of its fully loaded CET1 at that date. Millennium bcp's funding structure has generally been stable and its liquidity position has benefited from the substantial loan deleveraging carried out in the past four years. Customer deposits remained the bank's main funding source at about 80% of total funding at end-September 2017. Reliance on wholesale funding is more limited and mostly in the form of senior and covered bonds and ECB funding. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's belief that senior creditors of the bank cannot rely on receiving full extraordinary support from the sovereign in the event that the bank become non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for resolving banks that is likely to require senior creditors to participate in losses, if necessary, instead of - or ahead of - a bank receiving sovereign support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings on subordinated debt and other hybrid capital issued by Millennium bcp are notched down from its VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. The rating on Millenium bcp's lower Tier 2 is notched down once from the bank's VR for loss severity. Millenium bcp's preference shares are rated 'CCC' because Fitch believes that economic losses are likely to be moderate before coupon payment resumes. We estimate this will occur at the next coupon date after the approval of 2017 accounts. The preference shares' 'CCC' rating has been placed on Rating Watch Negative (RWN) to reflect the publication of the Exposure Draft: Bank Rating Criteria (see "Fitch Publishes Bank Rating Criteria Exposure Draft" dated 12 December 2017). As outlined in the Exposure Draft, Fitch plans to introduce + and - modifiers at the 'CCC'/'ccc' level for Long-Term Issuer Default Ratings (IDRs), long-term international debt and deposit ratings, Derivative Counterparty Ratings (DCR) and VRs. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT Higher earnings could lead to the upgrade of Millenium bcp's ratings in the next 18-24 months. Sustained reductions in problem assets resulting in lower impairment needs would strengthen internal capital generation. The improved economic environment in Portugal should decrease NPL inflows, increase recoveries and cures and facilitate the sale distressed debt portfolios. This would lower the vulnerability of the bank's capital to asset quality shocks. Downward rating pressure would arise from a failure to improve asset quality metrics, weakening profitability or unexpected deterioration in the operating environment in Portugal. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the bank's SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support the bank. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings on subordinated debt and other hybrid capital issued by Millennium bcp are primarily sensitive to a change in the bank's VR. The rating of the subordinated notes is also sensitive to a widening of notching if Fitch's view of the probability of non-performance on the bank's subordinated debt relative to the probability of the group failing, as measured by its VR, increases or if Fitch's view of recovery prospects changes adversely. The RWN on the rating of the preference shares reflects that upon publication of the final criteria (provided it is in line with the Exposure Draft) the rating is likely to be downgraded to 'CCC-'. The rating of the preference shares is also sensitive to Fitch changing its assessment of the probability of the notes returning to performing status. The rating actions are as follows: Millenium bcp Long-Term IDR affirmed at 'BB-'; Outlook Revised to Positive from Stable Short-Term IDR affirmed at 'B' Viability Rating: affirmed at 'bb-' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt long-term rating affirmed at 'BB-' Senior unsecured debt short-term rating affirmed at 'B' Subordinated notes affirmed at 'B+' Preference shares: 'CCC' placed on RWN Contact: Primary Analyst Josu Fabo, CFA Director +34 93 494 3464 Fitch Ratings Espana, S.A.U. Avinguda Diagonal, 601, 2nd Floor 08028 Barcelona Secondary Analyst Arnau Autonell Associate Director +44 20 3530 1712 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Exposure Draft: Bank Rating Criteria (pub. 12 Dec 2017) here Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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 © 2017 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 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

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