Romania’s largest bank BCR questions Moody's two-notch downgrade of its deposit ratings

By bne IntelliNews July 19, 2013

Romania’s largest bank BCR said the two-notch downgrade of its deposit ratings operated by Moody’s was unsolicited and based on open-source data that are outdated most of the time, Adevarul daily reported. It quoted a statement of the bank, which is part of Austrian group Erste Group, that was issued as a response to the rating action.

The rating agency did not have access to the bank’s management, detailed data on its performance, the current developments or the anticipative actions pursued by the bank, the press release said. Consequently, the rating action was rather based on macroeconomic, market and financial patterns for the past period – most of which have been reversed or are improving recently, the lender explained without further details.

Indeed, the bank’s financial performance improved in Q1 this year on an annual basis – but the quality of its portfolio has further deteriorated and is particularly weak. BCR reduced its IFRS consolidated* net loss to only RON 12.1bn (EUR 2.74mn) in Q1 from RON 307.8mn a year earlier, the bank said in a statement.

The first-quarter performance sets ground for returning to the profit area this year, the bank added. At the same time, the bank admits that the non-performing loan [NPL] ratio hit 28.2% at the end of March – when the ratio for the whole banking system was 19.08%.

Moody’s downgraded earlier this week the deposit ratings of Romania’s two largest banks - BCR and BRD. BCR’s long-term deposit rating was cut to Ba3 from Ba1, following the lowering of the bank's baseline credit assessment (BCA**) to b3 from b1. The grounds invoked by Moody’s, the same for both banks, 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. BCR might have to build further provisions or increase capital if the asset quality deterioration continues at a rate similar rate to that observed in 2012, Moody’s also pointed.

* consolidated at the level of Romanian BCR group

** 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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