Moody’s downgrades Austrian lenders in Romania

Ratings agency Moody’s last week downgraded Banca Comerciala Romana (BCR) and Raiffeisen Bank as part of a larger downgrade of Austrian parent banks on mounting Euro zone pressures and an anemic recovery of the domestic economy.

Ovidiu Posirca

The Romanian economy slipped into technical recession after shrinking by 0.2 percent in the last quarter of 2011, further losing 0.1 percent of GDP in the first quarter of this year.

The country is dependent on exports and private sector capital inflows, mainly from Euro zone members that have to deal with their home grown crisis, said officials.

The rating agency reported that private consumption remained weak, while unemployment is starting to increase. This has led to weak credit demand, lower revenues and asset-quality pressures in the banking sector.

BCR saw its long-term deposits in local cut by one notch and those in foreign currency cut by two notches, both to Ba1 with a negative outlook, while short-term deposits in local and foreign currency were downgraded to Not Prime, which is included in the speculative grade, with negative outlook.

The lender, which is majority-owned by Austrian Erste Group, said the downgrade will have a limited impact due to its strong deposit base that allows high liquidity. Erste Group holds 93 percent of BCR and the group’s exposure in Romania has increased to EUR 8.5 billion in the last three years. BCR is the largest bank in Romania, with market shares of around 20 percent in deposits and 22 percent on loans.

The bank financial strength rating was lowered to E+ from D with stable outlook, which means that BCR may receive parental support due to the worsening domestic conditions.

Meanwhile, Raiffeisen Bank saw its long-term deposits in local and foreign-currency downgraded by one notch to Ba1 with stable outlook, while the short-term deposits in local and foreign currency were cut to Not Prime with stable outlook.

Raiffeisen Bank, majority-owned by Austrian Raiffeisen Bank International (RBI), said the downgrade doesn’t reflect its financial performance, adding that the parent bank is committed to further developing its Romanian subsidiary.

The lender holds market shares of 6.5 percent in loans and 8.4 percent in deposits and has a strategic importance in the RBI group, according to Moody’s.

The bank’s financial strength rating was dropped to D- from D with stable outlook, meaning that the subsidiary may require parental support at times. Apart from the Romanian operations of the two lenders, Moody’s downgraded Erste’s subsidiary in the Czech Republic, while affirming Hungary’s rating. Raiffeisen subsidiaries in Slovakia and Ukraine were downgraded, while Hungary was affirmed.

Loan exposure

Moody’s warned that the high level of foreign-currency loans is making lenders more vulnerable to external shocks, while bad loans from underperforming companies are also putting profit under pressure.

The volume of non-performing loans for BCR had reached 22.4 percent of the total loan portfolio by March due to its large exposure to weak small and medium enterprises and micro companies, according to the agency. In addition, foreign currency lending is 62 percent of the total loan portfolio, while the poor asset quality led to a loss of EUR 70.8 million in Q1.

Raiffeisen has increased lending by 17 percent per year in the past two years, in a flat domestic banking system, which could put pressure on the asset quality from a partially unseasoned loan book, warned Moody’s.

The lender is exposed to external shocks due to its relatively high corporate borrower concentration and Raiffeisen’s level of foreign-currency loans, amounting to 44 percent of gross loans, mainly Euro-denominated. The lender doubled its net profit in Q1 to EUR 31 million.

Moody’s last week downgraded seven lenders in Germany and three in Austria – Erste Group Bank, Raiffeisen Bank International and UniCredit Bank Austria – because of the risk of shocks from the Euro zone debt crisis and high exposure to emerging economies in Eastern Europe.

Erste Group Bank was downgraded by two notches to A3, while the ratings of Raiffeisen Bank International and UniCredit Bank Austria were cut by one notch to A2 and A3.

The rating agency also cut ratings for Commerzbank, Germany’s second largest bank by assets, and five other banks.

It will make a separate rating decision on Deutsche Bank, Germany’s largest lender. Moody’s has maintained Romania in the group of countries recommended for investments. At present, Romania has a Baa3 rating with stable outlook.

ovidiu.posirca@business-review.ro

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