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Fitch Affirms Bank Gospodarstwa Krajowego at 'A-'; Outlook Stable
February 21, 2017 / 4:36 PM / 9 months ago

Fitch Affirms Bank Gospodarstwa Krajowego at 'A-'; Outlook Stable

(The following statement was released by the rating agency) WARSAW/LONDON/MOSCOW, February 21 (Fitch) Fitch Ratings has affirmed Poland-based Bank Gospodarstwa Krajowego's (BGK) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'A-' with Stable Outlook. A full list of ratings actions is provided at the end of this commentary. Fitch does not assign a Viability Rating to BGK as its business model is highly dependent on support from the state. KEY RATING DRIVERS IDRS, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR Bank Gospodarstwa Krajowego's IDRs, senior debt rating, Support Rating and Support Rating Floor reflect Fitch's view of an extremely high probability of support from the Polish state (A-/Stable), in case of need. This view is predominantly based on BGK's policy role, which in turn is underpinned by the bank's 100% ownership by the government. Dedicated legislation governs BGK's activities and exempts the bank from the Capital Requirements Directive (CRD) IV and Bank Recovery and Resolution Directive (BRRD). The bank, however, complies with most CRD IV requirements with minor exceptions and remains subject to banking supervision by the Polish supervisor (KNF). Although most of BGK's debt is not guaranteed by the Polish state, according to Article 3 of the Law on BGK, the state provides capital, including through subordinated debt or by contribution in kind, and provides liquidity support to BGK. The ministry responsible for public finance is required to provide BGK with its own funds to ensure the fulfilment of BGK's duties and that the bank maintains adequate liquidity. The BGK Act requires a formalised agreement between BGK and the Ministry of Finance covering the procedures, terms and conditions of capital and liquidity support to be provided to the bank is case of need. According to article 3 of the BGK Act, the commitment of the state satisfies the credit protection requirements, within the Articles 213-215 of the Regulation No 575/2013, granted by the State Treasury. Based on that premise local currency receivables of commercial banks due from BGK carry a 0% risk weight. Apart from capital and liquidity commitments as per Article 3, BGK's short-term liquidity is supported by a committed deposit line from the Ministry of Finance. The unutilised part of this line is included in calculating liquidity ratios in line with CRR/CRDIV requirements. The bank manages an account for public-sector entities' deposits at the Ministry of Finance. BGK is responsible for providing all payment, transfer and clearing services to the entities. The Ministry of Finance also uses the bank for placing its short-term liquidity surpluses, for foreign-currency transfers from the EU, and for servicing the foreign debt of the central budget. BGK also issues bonds on behalf of the National Road Fund. The bank's activities outside its commissioned tasks and participation in governmental and government-initiated programmes are focused on the public sector and project finance. The bank is also engaged in commercial activities not directly related to the government-initiated programmes, but in line with its mission. These are usually through participation in banking consortia formed with commercial banks and through setting up and funding specialised closed-end funds. BGK's core funding comes predominantly from the public sector. The placements from the Ministry of Finance tend to be large, but volatile and are reinvested in liquid assets. The bank also receives bilateral funding from international financial institutions (around PLN2.9bn as of end-3Q16), has an active senior unsecured programme of up to PLN10bn (PLN5.9bn outstanding as of end-3Q16) and an up to EUR1bn EMTN programme guaranteed by the state (EUR800m outstanding at end-2016). BGK is not subject to bankruptcy law. It can only be liquidated, with all liabilities of the bank taken over by the state on the liquidation date. GUARANTEED DEBT The bonds were issued under an EMTN programme of up to EUR1bn, which allows for the issuance of various types of notes. Each series of notes issued under the programme is subject to a separate guarantee, and each guarantee will need to be approved by the State Treasury of the Republic of Poland on an issue-by-issue basis. The notes' rating is in line with the Republic of Poland's 'A-' Long-Term Foreign-Currency IDR. This reflects the unconditional and irrevocable state guarantee separate for each issue, which covers payments of both principal and accrued interest up to the specified total amount, and Fitch's expectation that the sovereign will honour the guarantee provided to noteholders fully and in a timely manner. The state guarantee ranks pari passu with Poland's other unsecured senior obligations. Proceeds from the issue will be used to finance the National Road Fund. The fund is not incorporated as a legal entity, and its assets and liabilities are booked off-balance sheet by BGK. BGK is the issuer of the notes under the programme and, according to the issue documentation, the notes "constitute direct, general and unconditional obligations of the issuer". However, the documentation also states that "any payments under debt securities issued by BGK to finance the National Road Fund (including any notes to be issued under the programme) may only be made from the National Road Fund's funds and not from other funds or assets held by BGK". In Fitch's view, this gives rise to some ambiguity as to the extent of recourse to BGK under the notes. However, this does not affect the notes' rating, given that it is driven by the state guarantee. RATING SENSITIVITIES IDRS, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR BGK's ratings are sensitive to changes to the Polish sovereign ratings and to a change in the bank's status as a policy bank. Fitch does not believe that the state's strong propensity to support BGK is likely to change in the foreseeable future. GUARANTEED DEBT The notes' long-term rating is sensitive to changes in Poland's Long-Term Foreign Currency IDR. KEY RATING DRIVERS AND SENSITIVITIES - NATIONAL RATINGS The National Long-term Rating and National debt rating of BGK reflect the highest rating available within Poland's National Rating Scale. They reflect our view that relative to other issuers or obligations in Poland, it has the lowest expectation of default risk. They are driven by the same factors as the IDRs and are sensitive to changes in Fitch's view of support available to the bank from the Polish sovereign. This in turn would be sensitive to changes in BGK's ownership /or status as a policy bank. Fitch views these as unlikely in the foreseeable future. The rating actions are as follows: Long-Term Foreign Currency IDR: affirmed at 'A-'; Stable Outlook Short-Term Foreign Currency IDR: affirmed at 'F2' Long-Term Local Currency IDR: affirmed at 'A-'; Stable Outlook Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A-' National long-term rating: affirmed at 'AAA(pol)';Stable Outlook National short-term rating: affirmed at 'F1+(pol)' Senior unsecured debt issuance programme long-term foreign currency rating: affirmed at 'A-' Senior unsecured debt issuance programme long-term local currency rating: affirmed at 'A-' Senior unsecured debt issuance programme National long-term rating: affirmed at 'AAA(pol)' Senior unsecured bonds long-term local currency rating: affirmed at 'A-' Senior unsecured bonds National long-term rating: affirmed at 'AAA(pol)' Senior guaranteed notes long-term foreign currency rating: affirmed at 'A-' Contact: Artur Szeski Senior Director +48 22 338 6292 Fitch Polska S.A. Krolewska 16 00-103 Warsaw Secondary Analyst Jakub Kopiec, CFA Analyst +48 22 330 6702 Committee Chairperson James Watson Managing Director + 7 495 956 6657 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:; Malgorzata Socharska, Warsaw, Tel: +48 22 338 62 81, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019309 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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