(The following statement was released by the rating agency)
WARSAW/LONDON, April 26 (Fitch) Fitch Ratings has affirmed the
Default Ratings (IDRs) of Czech Republic-based Ceska Sporitelna
Komercni Banka (Komercni) at 'A-' and upgraded Slovakia-based
Sporitelna (Slovenska) to 'A-' from 'BBB+'. All Outlooks are
Stable. The Agency
has upgraded the Short-Term IDRs of Ceska and Slovenska to 'F1'
from 'F2' and
affirmed Komercni at 'F1'.
We have also affirmed the Viability Ratings (VRs) of Ceska and
Komercni at 'a-'
and Slovenska at 'bbb+'. A full list of rating actions is
available at the end
of this commentary.
The upgrade of Slovenska's IDRs reflects our reassessment of
ability to provide support, following its upgrade in March 2017
Upgrades Erste Group Bank AG to 'A-'; Outlook Stable' available
www.fitchratings.com). The upgrade of Ceska's Short-Term IDR is
driven by our
revision of the strength of its liquidity profile. The
affirmation of Long-Term
IDRs of Ceska and Komercni reflects their sound fundamental
credit quality and
no major changes in their financial metrics over the last 12
Erste Group Bank AG (A-/Stable/a-) owns 99% of Ceska and 100% of
while Komercni is 60% owned by Societe Generale (SocGen;
KEY RATING DRIVERS
IDRS, SUPPORT RATING
The IDRs of Ceska and Komercni are driven by their standalone
reflected in their VRs. Komercni's IDRs are also underpinned by
support from SocGen. The IDRs and the Support Rating of
Slovenska were upgraded
by one notch and as a result the bank's Long-Term IDR is now
equalised with Erste, sharing the same Stable Outlook. The
Stable Outlooks on
Ceska and Komercni reflect broadly balanced risks related to
profiles (and SocGen's).
The three banks' Short-Term IDR's of 'F1' are the higher of the
possibilities corresponding to the Long-Term IDR of 'A-'.
Ceska's coverage of
its short-term liabilities by liquid assets is strong and its
benefits from its leading retail deposit franchise in the Czech
Komercni's and Slovenska's Short-Term IDRs are underpinned by
parents' solid liquidity and our view that parental propensity
to support is
more certain in the near term.
Komercni's Support Rating of '1' reflects Fitch's view of an
probability of support from SocGen. Our view is mainly based on
strong synergies with SocGen and its role as the largest and
subsidiary in the strategically important Central and Eastern
region. We also take into consideration Komercni's long and
record in supporting group objectives (which is likely to
ownership of the subsidiary, a high level of management and
The Support Ratings of Ceska ('2') and Slovenska ('1') reflect
extremely high probability of parental support, respectively.
The lower Support
Rating for Ceska reflects its larger size relative to Erste,
which in our
opinion constraints the parent's ability to provide timely and
support. At end-2016, Ceska and Slovenska respectively accounted
for about 19%
and 7% of Erste's assets, and about 34% and 15% of pre-tax
Both subsidiaries are key and integral components of the Erste
as they provide banking products and services in Erste's core
long-term strategic presence in the CEE region reflects the
proximity of the Czech, Slovak and Austrian markets. Our
assessment of support
takes also into consideration the significant contribution from
subsidiaries to the group's profitability and capitalisation, a
high level of
management and operational integration, the ownership structure,
and a long and
successful history of supporting the objectives of Erste group.
The VRs of the three banks reflect their conservative risk
capitalisation, stable funding based on customer deposits and
Healthy asset quality and solid through-the-cycle profitability
by established domestic franchises, consistent strategies and
operating environments. Slovenska's VR is one notch below that
of the Czech
banks because the Slovak operating environment is less resilient
shocks and due to the bank's stronger growth appetite and
The three banks apply conservative underwriting standards
supported by strong control environments and tight parental
accelerated credit expansion (driven by margin pressure) was
moderate at Ceska
and Komercni (about 8% growth in 2016 and about 6% in 2015).
faster than peers, but loan growth moderated in 2016 to about 9%
2014: 12%) and is unlikely to increase in 2017 and beyond. The
central banks of
Slovakia and the Czech Republic have tightened standards on
(particularly for loans with high loan/value ratios) and
countercyclical buffers from January 2017 (Czech Republic) and
(Slovakia). These measures should slow market loan growth and
should also reduce
the risk of a residential property price bubble in both markets.
Market risk at the three banks is moderate and stems mainly from
interest rate risk, due to their high stocks of fixed-income
mortgages). However, we believe that their margins are
sufficient to cushion
potential interest rate stress.
Capitalisation is a considerable rating strength and benefits
from the three
banks' solid profitability and fairly low credit risk profile.
At end-2016, the
Fitch Core Capital (FCC) ratio was about 22% at the three banks.
The ratio of
unreserved impaired loans to FCC was low and equalled 3% at
Ceska, 7% at
Komercni and 10% at Slovenska.
The three banks' strong self-funding capacity reflects their
ample liquidity and
well-established domestic deposit franchise in the retail (Ceska
and the corporate (Komercni) segments. At end-2016, the gross
deposits ratio equalled 75% at Ceska, 85% at Komercni and 93% at
higher ratio at Slovenska should be considered alongside a
reliance on stable and long-term funding through covered bonds.
deposits represented the vast majority (about 85%-90%) of total
We expect that the strong Czech and Slovak economic environment
will continue to
support asset quality in 2017. Retail borrowers benefit from low
falling unemployment and rising disposable income. The solid GDP
growth in both
economies bodes well for the performance of corporate customers.
of asset quality at the three banks also takes into
consideration a high share
of collateralised lending, substantial provision coverage of
modest write-offs of legacy bad debts, a high degree of
stability in asset
quality through-the cycle and relatively low (moderate at
concentration by industries and single names.
In 2015 and 2016 the impaired loans ratio improved due to loan
collateralised), recoveries and subdued default rates. The
ratios shrank to 3.2%
(Ceska), 3.8% (Komercni) and 4.5% (Slovenska). The reserve
coverage of impaired
loans is reasonable (about 70% at Komercni and Slovenska and
about 80% at Ceska)
given the largely collateralised lending and high loss
through the pre-impairment operating profit.
The three banks' results are closely tied to the performance of
economies, which are likely to remain supportive in 2017 and
profits in 2017 will be likely weaker, due to material one-off
gains in 2016 and
continued margin pressure. In 2016 the banks' margins net of
charges contracted to 2.7% (Ceska), 2.5% (Komercni) and 3%
margins are still strong by CEE standards, essentially in light
of the banks'
low credit risk profiles. Further credit and operating cost
unlikely, due to already high operating cost efficiency and low
IDRS AND VRS
Ceska's IDRs are sensitive to changes in its VR. Komercni's and
IDR's could be upgraded if their parents are upgraded. A
downgrade of Komercni
would require a downgrade of both its VR and SocGen's Long-Term
would be downgraded if Erste is downgraded.
Upside potential for the three banks' VRs remain limited, given
concentration in what are fairly small economies and the already
levels of their respective VRs. The VRs of the three banks would
resilient to a moderate deterioration in the operating
environment. However, a
sharp deterioration in the eurozone economies (which are key
for the Czech Republic and Slovakia), materially affecting the
quality and performance, could lead to the VRs being downgraded.
The Support Ratings and the floors they provide for the
IDRs, are sensitive to changes in the parent banks' Long-Term
IDRs, or of
Fitch's view of their propensity or ability to support their
does not expect the three banks' strategic roles to diminish in
the medium term.
The rating actions are as follows:
Long-Term IDR: affirmed at 'A-'; Outlook Stable
Short-Term IDR: upgraded to 'F1' from 'F2'
Support Rating: affirmed at '2'
Viability Rating: affirmed at 'a-'
Long-Term IDR: affirmed at 'A-'; Outlook Stable
Short-Term IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Viability Rating: affirmed at 'a-'
Long-Term IDR: upgraded to 'A-' from 'BBB+'; Outlook Stable
Short-Term IDR: upgraded to 'F1' from 'F2'
Support Rating: upgraded to '1' from '2'
Viability Rating: affirmed at 'bbb+'
Michal Bryks, ACCA
+48 22 338 6293
Fitch Polska SA
Jakub Kopiec, CFA
+48 22 330 6702
+48 22 338 6292
Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153,
Additional information is available on www.fitchratings.com
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