February 21, 2017 / 11:10 AM / 9 months ago

Fitch Affirms Bulgarian Development Bank at 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) WARSAW/LONDON/MOSCOW, February 21 (Fitch) Fitch Ratings has affirmed Bulgarian Development Bank's (BDB) Long-Term Issuer Default Rating (IDR) and Support Rating Floor (SRF) at 'BBB-', respectively, Short-Term IDR at 'F3' and Support Rating at '2'. The Outlook on the Long-Term IDR is Stable. Fitch does not assign a Viability Rating to BDB as its business model is highly dependent on support from the state. KEY RATING DRIVERS BDB's IDRs and SRF are equalised with those of the Bulgarian sovereign (BBB-/Stable). The affirmation of the ratings reflects Fitch's continued belief of a high probability of support from the Bulgarian sovereign, in case of need. The Stable Outlook mirrors that on the Bulgarian sovereign. The state's strong economic incentive to support BDB is mainly driven by the almost 100% ownership of the bank by and significant funding from (or guaranteed by) the state. Our view also takes into consideration the bank's role in supporting the government's economic policy. BDB is subject to Bulgarian resolution legislation, which requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support. This limits the state's ability to provide extraordinary support to BDB, particularly in view of the lack of a clear separation between the bank's pure policy and commercial activities. However, we believe that the state would act pre-emptively to prevent BDB's failure and avoid bailing-in senior creditors because the vast majority of BDB's funding is either sourced from or guaranteed by the state. In our opinion the state will likely maintain a high capital surplus at BDB over regulatory minimums, without breaching EU state aid rules. The state retained 2015 net income and will most likely do the same in respect to 2016 earnings. Furthermore, the bank expects to receive further ordinary capital support from the state to cover any shortfall from the implementation of IFRS9. At end-3Q16, the bank's CET1 ratio was 53.7% and its equity was sufficient to cover losses equal to 86% of all loans to non-bank customers. Potential support for BDB would be easily manageable for the state due to the bank's small size (total assets equal to 1.8% of Bulgarian GDP in 2016) and the sovereign's sound public finances. At end-3Q16, the bank's liabilities not directly linked to the sovereign represented less than 0.2% of the country's GDP. Bulgaria's general government debt rose to an estimated 29% of GDP at end-2016, but remained significantly below the median for 'BBB' countries of 40%. BDB has policy bank status, as defined by dedicated legislation, the BDB Act. However, the bank's policy role has been under-developed so far and the Act gives it significant leeway in pursing commercial activities. BDB's policy mandate has been developing through the bank's participation in the state-supported National Energy Efficiency Programme (NEEP) started in late 2015) and aimed at improving the energy efficiency of multi-family housing in Bulgaria. BDB lends directly to Bulgarian companies, but the key strategic focus in the long-term is on refinancing domestic and foreign commercial banks. At end-3Q16, these business lines represented 50% and 10% of the bank's assets, respectively. Pure policy loans in direct lending comprised only NEEP-related facilities (17% share in all loans to customers), while the remainder was generally commercial lending. NEEP loans and on-lending indirectly to SMEs were the key growth drivers in 2016. Fitch expects the loan book to further expand in the medium-term, driven by the increased utilisation of the NEEP (total value of the programme has been increased to BGN2bn by the state). Furthermore, lending related to other EU- and state-sponsored programmes that started in 2016 should drive growth, including the EUR150m BDB participation in the so called "Juncker Plan". RATING SENSITIVITIES IDRS AND SUPPORT RATING A downgrade of the sovereign rating would trigger the same action on the IDRs of BDB. The bank would also be downgraded in case of a significant increase of funding not sourced from or guaranteed by the state, material erosion of the bank's capital surplus over regulatory minimums, or a substantial expansion in commercial lending (not our base case). If the sovereign is upgraded, the upgrade of BDB will depend on Fitch's assessment of the state's economic incentive to support the bank based on BDB's i) legal status; ii) liability structure, iii) role in carrying out government policies in the economy, iv) and the state's flexibility to support the bank in compliance with local resolution legislation and EU state-aid rules. Contact: Primary Analyst Michal Bryks, ACCA Director +48 22 338 6293 Fitch Polska SA 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: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019288 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. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. 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. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below