Moody’s downgrades deposit ratings for Romania’s largest lenders BCR and BRD

By bne IntelliNews July 18, 2013

Moody’s rating agency said it has downgraded by two notches the long-term deposit ratings* on Romania’s largest banks BCR – Erste Group and BRD – Societe Generale. The outlook is negative.

Given the size of the two banks, the downgrade is rather relevant for the entire country’s banking system.

The grounds invoked by Moody’s are i. further deterioration in the banks’ already weak asset quality; ii. slim expectations for the two banks to return to profits in 2013 and iii. their exposure to weak and uncertain collateral values.

While BCR might have to build further provisions or increase capital if the asset quality deterioration continues at a rate similar to that observed in 2012, this is not the case with BRD – which remains adequately capitalised, Moody’s believes.

BCR BANK. Moody’s cut BCR’s long-term deposit rating to Ba3 from Ba1, following the lowering of the bank's baseline credit assessment (BCA**) to b3 from b1. BCR's asset quality is very weak, Moody’s said, and the ratio of problem loans to gross loans deteriorated further to 28.2% in March 2013 from 26.7% at end-2012. BCR's standalone bank financial strength rating (BFSR) was affirmed at E+. Romania’s largest bank

BCR reported nearly EUR 280mn consolidated loss attributable to the bank's shareholders in 2012 amid rising costs of provisioning for bad loans. Its assets were some EUR 16bn at the end of the year. The Austrian group appointed last year a new management at BCR to implement a two-year strategy that focuses on debt recovery, loan portfolio restructuring and downsizing the bank's network.

Moody's expects that the bank's asset-quality will continue to deteriorate. However, the bank's exposure to a potential structural weakening of the local leu currency versus the euro remains a key credit risk to asset quality. The bank's NPL stock will likely peak in 2013 and risk provisions will remain high, but lower than the previous year's peak of 6.8% of gross loans.

BRD BANK. Moody’s cut the long and short-term deposit ratings of BRD – Societe Generale to Ba2/Not-Prime from Baa3/Prime-3, following the lowering of the bank's BCA to b2 from a3. BRD's asset quality is weak, Moody’s explained, and the ratio of problem loans to gross loans deteriorated to 22.2% in March 2013 from 21.3% at end-2012. The standalone bank financial strength rating (BFSR) was lowered to E+ from D-. The long-term deposit ratings carry a negative outlook.

BRD posted a net loss of RON 332mn (EUR 75mn) in 2012 after the cost of risk surged 61.6% to RON 1,938mn. Its total assets stood at EUR 11bn at end-2012. On the upside, the bank said that it managed to diversify its funding sources and to improve its loan-to-deposit ratio from 103.6% to 98.7% at the end of 2012.

Moody's sees the bank's asset-quality deteriorating further with its exposure to a potential structural weakening of the leu versus the euro remaining a key credit risk to asset quality. The bank's NPL stock will probably peak in 2013 and risk provisions will remain high, though below last year's peak of 5.2% of gross loans.

* Bank Deposit Ratings are opinions on the bank’s ability to repay punctually its foreign and/or domestic currency deposit obligations and, in the case of long-term deposit ratings, also reflect the expected financial loss of the default. Bank Deposit Ratings do not apply to deposits that are subject to a public or private insurance scheme; rather the ratings apply to uninsured deposits, but they may in some cases incorporate the possibility that the official support might in certain cases extend to uninsured as well as insured deposits.

** BCAs are opinions on the intrinsic — or stand-alone — financial strength of issuers subject to extraordinary government support, which can include banks, sub-sovereigns and government-related corporate issuers (GRIs). Baseline credit assessments explicitly exclude the likelihood of extraordinary government support in the event a bailout is required, but does incorporate support as may be necessary for ordinary operations (for example, subsidies or tariffs).

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