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Fitch Affirms Four Polish Banks
May 19, 2014 / 4:11 PM / 3 years ago

Fitch Affirms Four Polish Banks

(The following statement was released by the rating agency) WARSAW/LONDON, May 19 (Fitch) Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDRs) of mBank at 'A', Bank Millennium at 'BBB-', and Alior Bank SA and Getin Noble Bank SA at 'BB'. The agency has also affirmed the Long-term IDRs of two of mBank's subsidiaries, mBank Hipoteczny and mLeasing, at 'A'. The Outlooks on Alior, Getin and Millennium are Stable, and Negative on mBank and its subsidiaries. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS: MBANK AND SUBSIDIARIES' IDRS, SUPPORT RATING AND SENIOR DEBT The IDRs, senior debt rating and Support Rating (SR) of mBank, and the ratings of mBank Hipoteczny and mLeasing, reflect Fitch's opinion that there is an extremely high probability that these entities would be supported, if required, by their ultimate almost 70% shareholder, Commerzbank AG (A+/Negative/bbb). Fitch believes that mBank is a strategically important subsidiary of Commerzbank, and its support-driven Long-term IDR is notched once from that of the parent. mBank aims to gradually repay parental funding, which finances the majority of foreign-currency-denominated mortgages. However, in Fitch's opinion, parent facilities will remain available, if mBank is unable to refinance these with market funding. The agency views mBank Hipoteczny and mLeasing as core subsidiaries of mBank, and equalises their ratings with those of the direct parent. This reflects their high dependence on mBank for funding and close operational integration with and supervision by the parent. Potential support from Commerzbank for mBank Hipoteczny and mLeasing could be extended directly or flow through mBank. The Negative Outlooks on the Long-term IDRs reflect that on Commerzbank (for more details see 'Fitch Revises Outlooks on 18 EU Commercial Banks to Negative on Weakening Support' at RATING SENSITIVITIES The Long-term IDRs and senior debt ratings will most likely be downgraded if Commerzbank's Long-term IDR is downgraded. A downward revision of Commerzbank's Support Rating Floor (SRF) is likely to cause downgrades of its Long-term IDR to the level of its Viability Rating (VR) at the time. Commerzbank's VR is currently four notches below its Long-term IDR, thus a lowering of the bank's SRF could result in a downgrade of similar magnitude for mBank, mBank Hipoteczny and mLeasing, to 'BBB-'. Fitch expects that the propensity of Commerzbank to support mBank, mBank Hipoteczny and mLeasing will remain strong. However, the support-driven ratings could also be sensitive to any weakening of propensity of the parent to provide support, which Fitch views as unlikely in the foreseeable future. KEY RATING DRIVERS AND SENSITIVITIES: ALIOR, GETIN AND MILLENNIUM's IDRs; ALL BANKS' VRS The IDRs of Alior, Getin and Millennium are driven by their standalone strength, reflected in their VRs, and are sensitive to changes in the VRs. The VRs of mBank, Millennium and Getin reflect their mid-sized franchises in the Polish banking sector and the currently broadly supportive operating environment. However, the ratings are constrained by the banks' material (albeit slowly declining) exposure to foreign currency mortgages and substantial foreign currency refinancing needs. The higher (bbb-) VRs of mBank and Millennium reflect their lower risk appetite, somewhat stronger franchises, solid capitalisation and reasonable recent performance. The lower (bb) VR of Getin reflects primarily its weaker capitalisation, asset quality and profitability. Alior's VR reflects its more limited franchise, shorter track record, rapid credit expansion (particularly in somewhat higher risk segments), significant impaired loan origination and modest internal capital generation. However, the rating also considers the bank's conservative funding strategy (based primarily on customer deposits), experienced management team and solid pre-impairment performance. Retail mortgages denominated in foreign currency (predominantly in Swiss francs) continued to reduce in 2013. However, they remained material at 28% (Getin), 35% (mBank) and 42% (Millennium) of total gross loans at end-2013. The quality of these loans at mBank and Millennium has held up reasonably well to date due to selective credit origination and a more urban geographical focus, but impaired loans comprised 9.2% of Getin's mortgage portfolio (comprising zloty and foreign currency exposures) at end-1Q14 (market average: 3.1%). A significant and prolonged weakening of the Polish zloty (not Fitch's base case) would be likely to impair borrowers' payment ability and drive up defaults. The average loan/value ratio in mortgages is high at all three banks, which indicates likely weaker recovery prospects if the operating environment deteriorates. Retail foreign currency lending at Alior is minimal, with FX mortgages comprising just 5% of the total gross loan portfolio. Getin's and Millennium's liquidity position in zloty is comfortable but both banks are strongly dependent on financial markets to hedge their large foreign currency loan portfolios. Consequently, their liquidity is sensitive to a potential depreciation of the Polish zloty against major currencies, which would bring about margin calls on derivative hedging transactions. However, refinancing risk related to these transactions is mitigated by improving average maturity and the track record of maintaining swap market access since the onset of the global financial crisis. mBank's strong liquidity is underpinned by a stable and diversified deposit base and on-balance sheet financing of foreign currency loans, sourced mainly from Commerzbank, but increasingly also through medium-term bond issuance. Alior's liquidity is adequate in light of its substantial growth plans and the relatively short tenor of the loan book. In Fitch's opinion, capitalisation at mBank and Millennium is stronger than at Alior and Getin, due to better loss absorption capacity, higher internal capital generation and a smaller proportion of unreserved impaired loans (Millennium). Relatively strong Fitch core capital (FCC) ratios at mBank (end-1Q14: 15.6%) and Millennium (end-1Q14: 14.4%) benefit from lower risk weights for mortgages in foreign currency calculated under the advanced internal ratings-based method. Polish banks applying the standardised method (such as Getin) use a 100% risk weight required by the local regulator. Getin and Alior's FCC ratios were 9.6% and 12.7%, respectively, at end-2013. The latter is adjusted for PLN458m of equity raised in December 2013, but registered in January 2014, which the bank plans to utilise by fast credit growth by end-2016. At end-1Q14, impaired loan ratios stood at 8.1% (Alior), 12.5% (Getin), 6.1% (mBank) and 4.3% (Millennium), compared with the 7.2% sector average. Better asset quality at mBank and Millennium reflects their more conservative risk management and should also be viewed in light of their stricter rules for classification of impaired loans. Origination of impaired loans has been substantial at Alior and Fitch believes that this will continue due to seasoning of the loan book and further likely fast credit growth. Alior's high single-name concentrations are also a potential source of lumpy credit losses. The impaired loan ratio at Getin was one of the highest among the largest banks in Poland, but the inflow of bad debts subsided in 2013 and the latest vintages indicate more contained default rates in new loans in all major product segments. In 2014, the performance of all four banks is likely to be supported by the improving operating environment in Poland. Alior's net interest margin is considerably better than peers, supported by a lending mix more focused on higher-yield products. However, Alior's income is sensitive to the volume of disbursed loans, the fast growth of which may not be sustainable. Getin expects a further reduction in risk and funding costs in 2014 and aims to achieve a PLN1bn net result in 2015 (2013: almost PLN400m), which Fitch considers ambitious. Millennium's Long-term IDR is one notch above that of its parent, Banco Comercial Portugues, S.A. (BCP; BB+/Negative/b). The agency's base case expectation is that any further weakening of BCP's credit profile, including a potential downgrade of its Long-term IDR to the level of its VR, will not lead to a negative rating action on Millennium. Fitch's view of low contagion risk for Millennium from BCP was outlined in its rating commentary, "Fitch Affirms Bank Millennium at 'BBB-'; Outlook Stable" dated 20 May 2013 at RATING SENSITIVITIES: VIABILITY RATING (ALIOR, GETIN, MBANK, MILLENNIUM) Upgrades of VRs would be likely to require (i) further re-balancing of credit portfolios (Getin, mBank, Millennium); (ii) significant reductions of balance-sheet currency mismatch (Getin, Millennium); (iii) stronger capitalisation (Getin, Alior); (iv) a significant strengthening of the bank's self-financing capacity (mBank); (v) a moderation of growth rates (Alior); and (vi) a longer track record of solid performance and stable asset-quality trends (Alior, Getin). Downward pressure on the VRs of all four banks could arise from (i) material deterioration in asset quality; (ii) considerably weaker internal capital generation; and (iii) a sharp and prolonged depreciation of the domestic currency combined with a deterioration of the operating environment (not Fitch's base case). KEY RATING DRIVERS AND SENSITIVITIES: SRFs AND SRs (ALIOR, GETIN, MILLENNIUM) The SRFs and SRs of Getin and Millennium are underpinned by Fitch's view of the moderate probability of support from the Polish sovereign. This reflects their significant systemic importance, reflected in considerable market shares in domestic retail deposits (7.2% and 4.8% at end-2013, respectively). However, these ratings are sensitive to a weakening in Fitch's assumptions on sovereign support propensity, as a result of which they are likely to be revised down to 'No Floor' and downgraded to '5', respectively, within the next one to two years (see "Fitch Affirms SRFs of 64 EMEA Banks; Downward Revisions Likely For Most Due To Weakening Support" at Provided Getin's and Millennium's VRs are not downgraded in the meantime, any downward revision of their SRFs or SRs will have no impact on their Long-term IDRs. Alior's SR of '5' reflects Fitch's view that potential support from the bank's largest shareholders cannot be relied upon. Carlo Tassara (an Italian holding company) held a 28% stake at end-1Q14 and plans to exit the bank by end-2014. Alior's SRF of 'No Floor' reflects Fitch's opinion that potential sovereign support cannot be relied upon in light of Alior's small systemic importance. The rating actions are as follows: Alior Long-Term foreign currency IDR: affirmed at 'BB', Stable Outlook Short-Term foreign currency IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'BBB+(pol)', Stable Outlook National Short-Term rating: affirmed at 'F2(pol)' Viability Rating: affirmed at 'bb' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Millennium Long-Term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable Short-Term foreign currency IDR: affirmed at 'F3' National Long-Term Rating: affirmed at 'A-(pol)'; Outlook Stable Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' Getin Long-term foreign currency IDR: affirmed at 'BB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'BBB(pol) '; Outlook Stable Viability Rating: affirmed at 'bb' Support Rating: affirmed at '3' Support Rating Floor: affirmed at 'BB' mBank Long-term foreign currency IDR: affirmed at 'A'; Outlook Negative Short-term foreign currency IDR: affirmed at 'F1' Viability Rating: affirmed at 'bbb-' Support Rating: affirmed at '1' Long-term senior unsecured debt rating: affirmed at 'A' Short-term senior unsecured debt rating: affirmed at 'F1' mFinance France Long-term senior unsecured debt rating: affirmed at 'A' mBank Hipoteczny Long-term foreign currency IDR: affirmed at 'A'; Outlook Negative Short-term foreign currency IDR: affirmed at 'F1' Support Rating: affirmed at '1' mLeasing Long-term foreign currency IDR: affirmed at 'A'; Outlook Negative Short-term foreign currency IDR: affirmed at 'F1' Support Rating: affirmed at '1' Contact: Primary Analyst (Alior, Getin, mBank, mFinance France, mBank Hipoteczny, mLeasing) Michal Bryks, ACCA Director +48 22 338 6293 Fitch Polska SA Krolewska 16, Warsaw 00-103 Primary Analyst (Millennium) Artur Szeski Senior Director +48 22 338 6292 Fitch Polska SA Krolewska 16, Warsaw 00-103 Secondary Analyst (Alior, Getin, mBank, mFinance France) Artur Szeski Senior Director Secondary Analyst (Millennium, mBank Hipoteczny, mLeasing) Agata Gryglewicz Associate Director +48 22 330 6970 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available on Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 31 January 2014, are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status 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 WEBSITE '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.

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