BOS refinances its Swiss franc retail mortgages through short
Fitch Affirms Four Polish Banks
(The following statement was released by the rating agency) WARSAW/LONDON, February 16 (Fitch) Fitch Ratings has affirmed the Long Term Issuer Default Ratings (IDRs) of Alior Bank SA at ‘BB’, Bank Ochrony Srodowiska (BOS) at ‘B+’, Eurobank at ‘A ‘ and Getin Noble Bank SA at ‘BB ‘. A full list of rating actions is at the end of this commentary. The affirmations of Alior, BOS and Getin reflect limited changes to their standalone credit profiles over the last 12 months. The affirmation of Eurobank reflects Fitch’s opinion of a high probability that the bank would be supported by its parent, Societe Generale (SG; A/Stable/a). KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND SENIOR DEBT Fitch believes that Eurobank is a strategically important subsidiary for SG, and therefore its Long Term IDR is notched down once from the parent’s IDR. Eurobank’s National Rating is also underpinned by potential support from SG. The cost of support should be Canada Goose online easily manageable for SG in light of Eurobank’s small relative size. The IDRs and National Ratings of Alior, BOS and Getin and senior debt ratings of BOS are driven by their standalone strength, as reflected in their Viability Ratings (VRs). The National Long Term Rating of BOS’s subordinated debt is notched down twice from the bank’s National Rating to reflect weak recovery prospects in case of default. SUPPORT RATINGS AND SUPPORT RATING FLOORS The Support Rating Floors (SRF) of ‘No Floor’ and the Support Ratings (SR) of ‘5’ for Alior and Getin express Fitch’s opinion that potential sovereign support of the banks cannot be relied upon. This is underpinned by the Polish resolution legal framework, which requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support. BOS’s SRF (B) and SR (4) reflect Fitch’s view of an only limited probability of extraordinary support for BOS from the Polish sovereign, mostly due to the combination of the Polish resolution legal framework and EU state aid rules. At the same time, Fitch believes that the state would endeavour to act pre emptively to avoid BOS breaching regulatory capital adequacy requirements due to the state’s indirect ownership of the bank and BOS’s role in financing Poland’s environmental protection projects. BOS is controlled by the state owned National Fund canada goose clearance for Environment Protection and Water Management (the Fund). We believe that it would be difficult for the Fund to increase capital at BOS, without triggering state aid and bail in considerations, if private shareholders demonstrate that they are unwilling to support the canada goose coats bank. In July 2016 the Fund and two other state related entities acquired about 50% and about 20% of BOS’s new share issue, respectively. The remainder was acquired by private investors. At end 3Q16, state related entities held about a 70% stake in BOS (the Fund: 52.4%). VIABILITY RATINGS ALIOR Alior’s VR of ‘bb’ reflects the rapid credit expansion of the bank, its higher appetite for credit risk than peers, weak internal capital generation and rapidly increasing new impaired loans. Alior’s strategic focus on unsecured retail lending, some concentration in higher risk industries (such as wind farms and the construction sector) and only moderate coverage of impaired loans by loan loss reserves are rating weaknesses. The bank’s conservative funding strategy is a rating strength and is based predominantly on customer deposits. In November 2016 Alior acquired some of the assets and liabilities of Bank BPH (BPH Core), 87.2% owned by GE Capital. We believe that this transaction has a neutral impact on Alior’s credit profile, because the bank’s capital ratios, asset quality, loan and funding mix should remain broadly unchanged. The bank’s business model is contingent on the rapid growth of disbursed loans, which may not be sustainable if the operating environment weakens. In 9M16, Alior’s net interest margin was almost twice as high as the sector average, reflecting the bank’s focus on unsecured high margin consumer lending. However, Canada Goose sale high loan impairment charges absorbed about 60% of Alior’s pre impairment operating profit in 2015 and 9M16. At end 3Q16, the impaired loans ratio reached 10.3% (sector average: 6.4%) and the bank aims to maintain a similar ratio in the next two years. Coverage of impaired loans by specific loan loss reserves was moderate at 59%. In 9M16, Alior’s loan book increased 14% (2015: 32%), but including loans acquired from BPH Core the estimated growth in 2016 was almost 50%. The bank plans to continue fast credit expansion in 2017 and 2018, which could bring capital under pressure. The bank’s Fitch core capital (FCC) ratio was 16% at expeditionparkaoutlets end 3Q16, but we estimate it at about 12% at end 2016 following the BPH Core acquisition. At end 3Q16, unreserved impaired loans equalled 29% of FCC, or 30% including BPH Core. Management has informed us that the bank is considering a credit risk guarantee from its largest shareholder (Powszechny Zaklad Ubezpieczen) to lower its capital requirement and create additional capacity for loan growth. At end 3Q16, customer deposits accounted for 87% of Alior’s total funding (excluding derivatives). They were split 69% to retail and 31% to non retail customers. We believe that depositor loyalty and the strength of customer relationships with the bank has not yet been fully tested through the cycle. Alior’s available liquidity was PLN6.6 billion (about 14% of total assets). BOS BOS’s VR of ‘b+’ suffers from the bank’s weak asset quality and profitability, which weigh on capitalisation. The VR also reflects the bank’s weak market franchise, moderate exposure to fairly high risk Swiss franc retail mortgages, modest loan loss reserve coverage of impaired loans and a significant reliance on price sensitive term deposits. In 1H16, BOS entered a rehabilitation programme Canada Goose Outlet supervised by the local regulator following an annual loss in 2015. As a result, the bank was exempt from the special bank tax. The key objective of the programme is to restore the bank’s long term profitability, but it is also likely to curb the bank’s risk appetite and impose a more conservative provisioning policy. The bank has a sizeable credit exposure to higher risk wind farm development projects, which it had financed until 2015. At end 2016, the wind farm portfolio amounted to about PLN2.2 billion (about 129% of FCC). These loans are under significant pressure from an unfavourable operating and regulatory environment. Credit risks are also amplified by long financing tenors, project linked collateral and large single exposures. BOS’s impaired loan ratio of 8.7% at end 3Q16 reflects the bank’s above average risk appetite. The ratio is masked by strong corporate loan growth before 2016 (including high risk exposure to wind farms) and considerable lending to the low risk public canada goose outlet toronto factory finance sector. We do not expect rapid deterioration in the Canada Goose Jackets Swiss franc mortgage portfolio canada goose black friday sale (which was moderate at about 9% of total gross loans at end 3Q16), assuming no economic stress. BOS has limited loss absorption capacity given its weak profitability prospects, high credit risk concentrations and significant unreserved impaired loans (48% of FCC at end 3Q16). This is despite a PLN400 2018 canada goose outlet million capital increase in July 2016. At end 3Q16, the bank had modest capital buffers over domestic regulatory minimum canada goose levels. BOS reported a marginal profit in 9M16. Its revenue base is weak, and earnings are highly vulnerable to even a moderate increase in impairment charges or overheads. BOS’s funding and liquidity are generally stable, but material funding concentration is present in typically price sensitive term deposits (mostly retail). The bank’s liquidity buffer covered about 21% of total deposits at end 3Q16. BOS refinances its Swiss franc retail mortgages through short term Swiss franc/zloty swaps, which increases rollover risk. canada goose outlet store locations EUROBANK Eurobank’s VR of ‘bb’ reflects the bank’s small size, a market franchise limited to retail customers, significant concentration on higher risk unsecured consumer loans and a moderate exposure to Swiss franc mortgages. These factors are counterbalanced by the bank’s considerable capital buffers, robust pre impairment operating profit, prudent risk controls and a comfortable funding and liquidity position. The bank’s impaired loans ratio (8% at end 2016) is moderately higher than the sector average (6.2% in the household segment only), which reflects the bank’s significant focus on unsecured consumer loans (about 46% of total gross loan book) and legacy bad debts. However, impaired loans are reasonably covered by loan loss reserves and new defaults were only moderate in 2015 and 2016. The quality of Swiss franc mortgage loans (about 12% of total gross loans at end 2016) has stabilised, but their high loan to value (LTV) ratios could reduce potential recoveries if the operating environment deteriorates. We view Eurobank’s capitalisation as solid given the bank’s significant buffers over regulatory capital minimums, solid internal capital generation (supported by strong margins) and good risk controls. Unreserved impaired loans represented about 24% of FCC at end 2016. The bank’s funding and liquidity profile benefits from strong parental support. At end 2016, SG financed Eurobank’s entire Swiss franc mortgage portfolio and a large part of its Polish zloty mortgages with long term facilities in respective currencies. Customer deposits (almost solely retail) finance the short term website cash loans. GETIN Getin’s VR of ‘bb ‘ suffers from loan book deleveraging (subdued earnings), high loan impairment charges, a substantial high risk exposure to legacy foreign currency mortgages, weak asset quality, high, albeit declining, cost of funding and only modest capitalisation. Getin’s funding, based mainly on retail savings deposits, is a rating strength. Getin entered a rehabilitation programme in 1H16 due to the bank’s loss in 4Q15 (driven by one offs). The programme (scheduled until end 2019) does not materially differ from the bank’s previous strategy, which was largely based on lowering funding and credit risk costs. Getin is aiming for its post rehabilitation profitability to be sufficient to absorb the bank tax (about PLN200 million annually) and to allow for sufficient internal capital generation, which will be challenging in our opinion. The bank is exempt from the bank levy until it exits the programme. In 9M16 Getin’s pre tax loss (without one offs) equalled PLN61.5 million. At end 3Q16, Getin’s impaired loans ratio of 14.3% was one of the highest in the sector, reflecting aggressive lending before 2010. The ratio of problem assets, including impaired loans, performing forborne loans and collateral seized for bad debts, was a higher 17.1%. We believe that Getin’s pre impairment operating profit may be insufficient to withstand even moderate stress in its loan book, given its large stock of legacy high LTV mortgages disbursed with relaxed credit standards. Foreign currency mortgages (mainly Swiss franc) are declining slowly, but still accounted for a high 26% of gross loans at end 3Q16. The bank’s high reliance on currency swaps to refinance CHF loans exposes Getin to potential prohibitive pricing for new swaps or their limited supply in case of market stress. At end 3Q16, the share of Swiss franc loans with LTV ratios above 80% and 100% equalled 76% and 65%, respectively. At end 3Q16, customer deposits represented 90% of total funding (excluding derivatives) and this ratio has remained stable in the last three years. Household savings accounted for 78% of total deposits. The bank’s strategic goal is to raise the share of relatively cheap personal accounts (salary accounts) through the acquisition of new customers and conversion of maturing term deposits. The bank’s liquidity risk management is reasonable. Getin aims to maintain the ratio of liquid assets to customer deposits at about 20%. Getin’s cheap Canada Goose FCC ratio (end 3Q16: 11.8%) should be seen in light of the bank’s high stock of unreserved impaired loans, which represented 93% of FCC. The Polish Financial Stability Committee proposed to increase the risk weight for foreign currency mortgages to 150% (currently 100%). If this proposal is implemented, we estimate that the bank may need to raise up to about PLN700 million of additional CET1 capital to meet the higher capital requirements. The ultimate impact will depend on the bank’s level of future capital buffers over regulatory minimums, but this amount is likely to be significantly above Getin’s internal capital generation capacity in the next 12 24 months. If this proposal is enacted, we believe that banks buy canada goose jacket cheap will likely be given sufficient time to either increase their capital or secure voluntary conversion of some of their foreign currency mortgages into Polish zloty without incurring material losses. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND DEBT RATINGS The support driven ratings of Eurobank are sensitive to SG’s IDRs. The IDRs and National Ratings of Alior, BOS (also senior debt ratings) and Getin are sensitive to changes in the respective banks’ VRs. The National Long term Rating of BOS’s subordinated debt is sensitive to the bank’s National Rating and Fitch’s view of recovery prospects in case of default. SRF AND SR Domestic resolution legislation limits the potential for upgrading Canada Goose Parka the banks’ SRs and SRFs. BOS’s SR and SRF could be downgraded and revised to ‘No Floor’, respectively, if the sovereign’s propensity to support BOS weakens. VIABILITY RATINGS A marked and prolonged weakening in the Polish economy (not Fitch’s base scenario) materially affecting the four banks’ asset quality, capitalisation and profitability, could lead to their VRs being downgraded. The VRs canada goose replica of Getin, BOS and Eurobank could also suffer from a large and sustained depreciation of the Polish zloty. The risk of a full conversion of foreign currency mortgage loans at a high cost for the banks has largely abated. Fitch believes that losses from a potential spread refund law should be manageable for BOS and Eurobank, without materially denting their capitalisation. However, large spread losses, if not offset by a capital increase, could put pressure on Getin’s regulatory capital ratios and ratings. Fitch does not anticipate any positive rating actions in the near term. However, the following factors would be positive for banks’ credit profiles and in combination could lead canada goose clearance sale to upgrades of their VRs: Alior: stronger capitalisation, a moderation of loan growth, stable asset quality and a longer record of solid profitability in an environment of low interest rates and the bank tax; BOS: a successful completion of its rehabilitation programme evidenced by reduced credit risk concentrations, sustainable and healthy earnings generation (net of the bank levy) and stronger capital buffers; Eurobank: a more significant strengthening of the bank’s franchise and asset quality; Getin: a successful completion of its rehabilitation programme, a reduction in impaired loans or significantly higher coverage by loan loss reserves, lower loan impairment charges, strengthened capitalisation and a material reduction in foreign mortgages achieved without significant conversion losses. 25 Nov 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd Frank Rating Information Disclosure Form here _id=1019101 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. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM canadian goose jacket 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. 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. 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. 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