Fitch says stable outlook for most Czech banks ratings, downside risks present.

By bne IntelliNews February 4, 2011
The outlooks for most ratings of local banks are stable, but there might be downside risks to some of their Long-term Issuer Default Ratings (IDRs), international rating agency Fitch said in a report on its website. According to Fitch, most local banks IDRs benefit from potential support of their parents, which means that the ratings are subject to the same factors as the parent banks IDRs. One factor Fitch is considering regarding some of the parent banks is the potential for reduced implicit sovereign support. Still, Fitch says that the Individual ratings of many banks in the Czech Republic indicate investment grade unsupported IDRs, and thus reduce the risk of multi-notch downgrades of these banks IDRs. In addition, given sector trends and developments at particular banks, there is scope for selective upgrades of Individual ratings for Czech banks. Fitch views the stand-alone risk profile of the Czech banking system as the most favourable as compared to those in Poland and Hungary. The extent of asset quality deterioration in the Czech banking system during the crisis was similar to that in Poland, but Fitch expects Czech banks asset quality to improve sooner. Foreign currency funding and dependence on external funding are low, and capitalisation is strong in the Czech Republic. The upward pressure on the Individual ratings of some Czech banks could emerge in 2011 if asset quality stabilises further, leading to a material improvement in profitability. Banks also need to consolidate their existing rating strengths in terms of the level and quality of capital and favourable funding and liquidity positions. Supportive operating environments, characterised by continued growth and macroeconomic stability, would also be important conditions for any Individual rating upgrades.

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