RPT-Fitch: Stable outlook for CEE banks in 2014, fragile recovery, asset-quality issues persist
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Dec 18 (Reuters) - (The following statement was released by the rating agency)
The overall sector outlook for banks in Central and Eastern Europe (CEE) remains stable but bleak as economic recoveries are still fragile and asset-quality issues persist in some weaker markets, Fitch Ratings says.
The balance of risks remains negative in Hungary and Romania, and Fitch expects some adverse trends to continue in Bulgaria and Croatia, while Polish, Czech and Slovak banks should again outperform regional peers. Key sector metrics may stabilise following the recapitalisation exercise in Slovenia.
Fitch expects the recovery in the region to progress in 2014 with weighted average real GDP growth for the eight countries to improve to around 2% from around 0.6% expected for 2013 and around 0.5% in 2012. Fitch expects GDP in 2014 for these countries to range between a slight recession of -0.2% for Slovenia to 2.9% growth in Slovakia. This should help further stabilize the performance of the banking sectors across the region. However, the recoveries are still fragile and largely dependent on external factors.
Loan growth will be strongly linked to economic recoveries and still varied across the region. The moderate pick up in lending growth that was already recorded in countries that proved more resilient in recent years (Poland, Czech Republic and Slovakia) should continue. Any credit growth in other CEE countries is likely to be slow at best, however, impacted by weak demand and cautious supply.
In Fitch's view the positive impact of the expected moderate lending recovery on revenues will be restricted by continuing pressures on net interest margins across the region from the low interest rate environment. This is likely to be only partly mitigated by weaker competition in some markets allowing banks to maintain wider spreads.
Fitch expects any improvement in asset-quality trends across the region in 2014 to be slow, and the stock of non-performing loans (NPLs) will remain high. Large stocks of NPLs tie up available funding and management resources, increase risk aversion and restrict new business. CEE banks and sovereigns are trying to address the problem in various ways, most radically in Slovenia, where the NPL problem is greatest and a large portion of impaired assets is to be transferred to a "bad bank".
Most CEE banks' Long-Term Issuer Default Ratings (IDRs) reflect potential support from parents, with Outlooks aligned accordingly. However, lower sovereign ratings in Bulgaria, Romania (both BBB-), Hungary and Croatia (both BB+) mean bank IDRs are often capped at Country Ceilings, and banks' Stable Outlooks reflect those on sovereigns. Slovenia aside, Negative Outlooks are not concentrated by country and are limited to a few cases of support-driven IDRs where subsidiaries share Negative Outlooks with parent banks.
Long-Term IDRs driven by Viability Ratings (VRs) rather than support generally share the same Outlooks as their respective domestic sector. Three Polish banks have VR-driven Long-Term IDRs at the same level as or higher than their western European parents.
CEE banks IDRs could be downgraded if their parent's IDRs come under pressure due to weakening eurozone economies or potential revisions of Support Rating Floors. Upgrades or Positive Outlooks are unlikely for most support-driven ratings, unless triggered by corresponding actions on more lowly-rated CEE sovereigns.
IDR changes due to changes in VRs would most likely coincide with changes in respective sector outlooks. Progress with the clean-up of Slovenian bank's balance sheets could generate moderate rating upside for ratings in that market.
Link to Fitch Ratings' Report: 2014 Outlook: CEE Banks
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