Rating agency Fitch downgraded on Monday the long-term default rating (IDR) of Banca Romaneasca (BROM) by one notch to B-, with negative outlook, due its large dependency on the parent National Bank of Greece (NBG) for foreign currency funding and liquidity.
NBG accounted for 42 percent of BROM’s total non-equity funding at the end of Q 1 2012, mostly short-term and euro-denominated, also providing significant off-balance sheet foreign currency hedges to BROM, according to Fitch. These expensive instruments widened NBG’s losses in Romania to EUR 10 million in Q1 2012 as net interest income plummeted. This figure stood at EUR 1 million in Q1 2011.
Fitch said BROM’s asset quality exceeds the average of the Romanian banking sector, while the non-performing loans stood at 8.5 percent of gross loans in Q1, below the banking system average of 14.1 percent.
BROM has a reduced exposure to NBG and Greece, but a Greek Euro zone exit could increase the contagion risk of the Romanian subsidiary. A Greek exit could force Romanian authorities to step in and provide domestic currency liquidity for BROM due to its sizeable aggregate market share.
Moreover, a further deterioration of the Greek economy could results in deposit outflows, but the rating agency said this will be limited by the national deposit guarantee scheme, which covers more than 60 percent of customer deposits. BROM’s rating may be downgraded once again if customer deposits fall or parent funding is cut.
Fitch says there is significant uncertainty as to whether Romanian authorities would inject capital into the Greek lender, if needed, or provide sufficient foreign currency liquidity.
BROM’s short-term IDR was affirmed at B, while the viability rating (creditworthiness) was cut by one notch to b-. The support rating was affirmed at 5, which means that there is a possibility of external support, but it can’t be relied on.
Apart from Banca Romanesca, the Greek group owns in Romania NBG Securities, NBG Factoring, NBG Leasing and Garanta Insurance.
United Bulgarian Bank, NBG’s Bulgarian subsidiary, seems to be in better shape as Fitch affirmed its rating, due to its lower parent dependency, although the outlook is negative.