(The following statement was released by the rating agency)
Jan 29 - Fitch Ratings has affirmed Poland-based ING Bank Slaski’s (ING BSK) Long-term Issuer Default Rating (IDR) at ‘A’ with a Stable Outlook and its Viability Rating (VR) at ‘bbb+'. A full list of rating actions is at the end of this rating action commentary.
RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING
The affirmation of ING BSK’s IDRs and Support Rating reflects Fitch’s opinion that there is a high probability that ING BSK would be supported, if required, by its 75% shareholder, Dutch ING Bank NV (‘A+'/Stable).
In Fitch’s opinion ING BSK is a strategically important subsidiary for its parent. ING BSK’s support-driven Long-term IDR is notched once from that of ING Bank NV and provides two notches uplift from ING BSK VR. The Stable Outlook reflects that on the parent.
ING BSK’s IDRs could be downgraded in case of a downgrade of the parent. ING Bank NV’s ‘A+’ Long-term IDR is driven by potential support from the Dutch authorities, and any negative revision in Fitch’s assessment of the probability of this support could result in a downgrade of both parent and subsidiary. However, any downgrades would most likely be limited to one notch given ING Bank NV’s VR of ‘a’. An upgrade of ING BSK’s Long-term IDR is unlikely in the foreseeable future.
RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES -VIABILITY RATING
The affirmation of ING BSK’s VR reflects the bank’s strong standalone credit profile. ING BSK’s ample liquidity, stable funding base, robust capitalisation and conservative risk management provide a sufficient cushion to absorb risks related to the bank’s significant growth appetite and the weakening of the operating environment in Poland.
Rapid loan growth, if coupled with a significant weakening of underwriting standards or deterioration in asset quality, could put pressure on the bank’s VR, as could a marked and prolonged downturn in the Polish economy. However, Fitch does not regard these scenarios as likely at present. An upgrade in ING BSK’s VR is not expected in the near to medium term given the bank’s growth ambitions and the weaker operating environment.
ING BSK’s funding structure is a considerable rating strength. Customer deposits represented about 86% of total funding at end-Q312, of which about 67% comprised mostly sticky and granular household savings. The bank’s reliance on funding from the parent is low and relates mainly to the refinancing of leasing contracts in foreign currency. The latter relates to the leasing portfolio acquired from the parent in early 2012
The bank’s ample liquidity somewhat contracted in 9M12 (in line with the strategic focus on lending growth) but remained strong. At end-Q312 the liquidity buffer totalled about PLN17.5bn (or about 24% of total assets) and comprised mostly a large portfolio of unencumbered Polish sovereign debt.
ING BSK’s strong capitalisation reflects healthy performance, conservative risk management, robust asset quality and a low level of unreserved impaired loans (about 12% of Fitch Core Capital at end-Q312). In Fitch’s opinion, the bank’s loss absorption capacity is high and should sufficiently cushion the impact of the bank’s planned growth and any moderate weakening of asset quality. At end-Q312, the Fitch Core Capital ratio of almost 15% was one of the strongest in the region.
Fitch expects ING BSK’s asset quality to remain strong, but the inflow of bad debts is likely to continue reflecting the fast expansion and seasoning of the loan portfolio (essentially residential mortgages) and growing disbursements of cash loans. At end-Q312, the impaired loans ratio equalled 4.4% (up 20bp ytd) and was considerably below the market average of about 7.7%. However, in 9M12 bad debts increased fast by 26% ytd, inflated by one large corporate default.
The bank plans to continue growing rapidly (and above the sector average) in the medium-term, as it aims to strengthen its franchise and cost efficiency (economies of scale). However, in Fitch’s opinion the bank’s credit risk profile should increase only moderately due to ING BSK’s relatively conservative lending standards and the economic slowdown (which somewhat limits growth possibilities). In 9M12 the sharp (19% ytd) loan book increase was mainly due to the acquisition of leasing and factoring subsidiaries from ING Lease Holding NV, which accounted for almost 14ppts of growth.
ING BSK’s performance in 2013 is likely to be moderately dampened by the weaker operating environment, slower balance sheet growth, margin contraction and pressures on non-interest income. The introduction of a mandatory contribution to the stabilisation fund could reduce the bank’s results in 2013 by up to PLN100m (equivalent to almost 10% of annualised 9M12 operating profit).
The rating actions are as follows:
Long-term foreign currency IDR: affirmed at ‘A’; Outlook Stable
Short-term foreign currency IDR: affirmed at ‘F1’
Viability Rating: affirmed at ‘bbb+’
Support Rating: affirmed at ‘1’