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Fitch Takes Actions on Outlooks for 3 Bulgarian Banks and 1 Leasing Company; Affirms IDRs
June 12, 2017 / 1:23 PM / 5 months ago

Fitch Takes Actions on Outlooks for 3 Bulgarian Banks and 1 Leasing Company; Affirms IDRs

(The following statement was released by the rating agency) WARSAW/LONDON, June 12 (Fitch) Fitch Ratings has revised the Outlooks on the Long-Term Issuer Default Ratings (IDRs) of Bulgarian Development Bank (BDB), Societe Generale Expressbank (Expressbank) and Sogelease to Positive from Stable. At the same time we have affirmed the Long-Term IDRs of BDB, Expressbank and Sogelease at 'BBB-', 'BBB+' and 'BBB+', respectively. Fitch has also affirmed the Long-Term IDR of Allianz Bank Bulgaria (ABB) at 'BBB+' with a Stable Outlook. A full list of rating actions is at the end of this commentary. The rating actions follow Fitch's revision of Bulgarian sovereign Outlook to Positive from Stable on 2 June 2017 (see 'Fitch Revises Bulgaria's Outlook to Positive; Affirms IDR at 'BBB-' at KEY RATING DRIVERS IDRS The Outlook on BDB was revised to Positive from Stable because BDB's IDRs are equalised with those of the Bulgarian sovereign. The affirmation of BDB's Long-Term IDR reflects Fitch's continued belief of a high probability of support from the Bulgarian sovereign, in case of need. The state's strong incentive to support BDB is mainly driven by the almost 100% ownership of the bank by and significant funding from (or guaranteed by) the state. Our view also takes into consideration the bank's role in supporting the government's economic policy. Potential support for BDB would be easily manageable for the state due to the bank's small size (total assets equal to 2% of Bulgarian GDP end-1Q17) and the sovereign's sound public finances. More information about the support rationale is available in the recent rating action commentary 'Fitch Affirms Bulgarian Development Bank at 'BBB-'; Outlook Stable', dated 21 February 2017, at The Outlook revision to Positive from Stable on Expressbank and its subsidiary Sogelease is driven by the sovereign rating action. Expressbank is owned by Societe Generale (SG, A/Stable, 99.7% stake) and would have been rated one notch below the parent's were it not for the constraint from Bulgaria's Country Ceiling of 'BBB+'. The affirmation of Expressbank's and Sogelease's IDRs reflects Fitch's opinion of a high probability that they would be supported, if required, by their respective parents. Expressbank is based in the strategically important central and eastern European (CEE) region for Societe Generale and its synergies with SG are strong. In our assessment of support we also take into consideration significant funding from SG, Expressbank's long and successful track record in supporting SG's objectives (which is likely to continue), almost full ownership by the French parent and a high level of management and operational integration. The potential cost of support would be easily manageable for SG given Expressbank's small size. Sogelease is 100% owned by Expressbank and its IDRs are equalised with those of Expressbank because the leasing company is the bank's core subsidiary. Sogelease is an integral part of financial services provided by SG in Bulgaria and is strongly integrated into the parent group at both operational and funding levels. The affirmation of ABB's support-driven IDRs reflects Fitch's opinion of a high probability that it would be supported, if required, by Allianz SE (AA-/Stable), the bank's ultimate majority shareholder. Our opinion takes into consideration Allianz's strong credit risk profile and ABB's relative small size. However, Fitch believes that ABB has limited strategic importance to Allianz. Consequently, ABB's Long-Term IDR is four notches below that of Allianz. This is based on the strategic focus of Allianz on the insurance business, with ABB being its only banking subsidiary in CEE, and ABB's marginal contribution to the parent group's profits. In our view, Allianz's commitment to ABB depends on the subsidiary's contribution to Allianz's insurance and asset management business and financial self-sustainability. ABB's Stable Outlook mirrors that on the parent's Long-Term IDR. RATING SENSITIVITIES IDRS An upgrade of BDB will depend on a sovereign upgrade and on Fitch's assessment of the state's incentive to support the bank based on BDB's i) legal status; ii) liability structure, iii) role in carrying out government policies in the economy, and iv) the state's flexibility to support the bank in compliance with local resolution legislation and EU state-aid rules. The bank would be downgraded in case of a significant increase of funding not sourced from or guaranteed by the state, material erosion of the bank's capital surplus over regulatory minimums, or a substantial expansion in commercial lending (not our base case). A downgrade of the sovereign rating would trigger the same action on the IDR of BDB. The Long-Term IDRs of Expressbank and Sogelease would be upgraded if Bulgaria's Country Ceiling is revised upwards. The entities could be downgraded if Fitch believes that their strategic importance to their parents has weakened, which we view as unlikely. ABB is unlikely to be upgraded in case of an upward revision of the Country Ceiling, because of its limited strategic importance to Allianz. A downgrade of Allianz could lead to a downgrade of ABB. The rating actions are as follows: ABB Long-Term IDR affirmed at 'BBB+'; Outlook Stable Short-Term IDR affirmed at 'F2' Support Rating affirmed at '2' Viability Rating of 'bb-' unaffected BDB Long-term IDR affirmed at 'BBB-'; Outlook Revised to Positive from Stable Short-term IDR affirmed at 'F3' Support Rating affirmed at '2' Support Rating Floor affirmed at 'BBB-' Expressbank Long-Term IDR affirmed at 'BBB+'; Outlook revised to Positive from Stable Short-Term IDR affirmed at 'F2' Support Rating affirmed at '2' Viability Rating of 'bb' unaffected Sogelease Long-Term IDR affirmed at 'BBB+'; Outlook revised to Positive from Stable Short-Term IDR affirmed at 'F2' Support Rating affirmed at '2' Contact: Primary Analyst Michal Bryks, ACCA Director +48 22 338 6293 Fitch Polska SA Krolewska 16, 00-103 Warsaw Secondary Analysts Agata Gryglewicz (ABB, Expressbank) Associate Director +48 22 330 6970 Jakub Kopiec, CFA (BDB, Sogelease) Analyst +48 22 330 6702 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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