(Repeat for additional subscribers)
Jan 24 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Poland-based ING Bank Slaski's Long-term Issuer Default
Rating (IDR) at 'A' with a Negative Outlook and Viability Rating (VR) at 'bbb+'. A full list of
rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS a€“ IDRS AND SUPPORT RATING
The affirmation of the IDRs and Support Rating reflects Fitcha€™s opinion that
there is an extremely high probability that Bank Slaski would be supported, if
required, by its 75% shareholder, Dutch ING Bank NV (A+/Negative). Fitch
believes that Bank Slaski is a strategically important subsidiary for its
parent. The Negative Outlook on the banka€™s Long-Term IDR reflects that on ING
RATING SENSITIVITIES a€“ IDRS AND SUPPORT RATINGS
Bank Slaskia€™s IDRs would be downgraded if there was a downgrade of the parent.
ING Bank NV's 'A+' Long-term IDR is driven by potential support from the Dutch
authorities. In Fitch's view, there is a clear intention to ultimately reduce
state support for systemically important banks in Europe. This has been
demonstrated by a series of policy and regulatory initiatives at the European
Union level aimed at curbing systemic risk posed by the banking industry. This
might result in Fitch revising parent banksa€™ Support Rating Floors (SRF)
downwards, although the timing and degree of any change would depend on
If Fitch changes its view about the propensity of the Dutch authorities to
provide support to ING Bank NV, this would lead to downward pressure on its
IDRs, Support Rating and SRFs feeding through to Bank Slaskia€™s IDRs. However,
any downgrades would most likely be limited to one notch because of ING Bank
NV's VR of 'a'.
Fitch detailed its current thinking about sovereign support for banks in two
special reports ('The Evolving Dynamics of Support for Banks' and 'Bank Support:
Likely Rating Paths', both dated 11 September 2013) and the subsequent update
(Sovereign Support for Banks Update on Position Outlined In 3Q13, dated 10
December 2013). Fitch has stated that in cases where sovereign support is seen
as weakening, any rating actions will most likely be preceded by Outlook
revisions to IDRs, potentially as soon as 1Q14.
KEY RATING DRIVERS a€“ VR
The affirmation of Bank Slaskia€™s a€˜bbb+a€™ VR reflects its strong standalone credit
profile. The banka€™s VR is underpinned by its ample liquidity, stable funding
base, healthy internal capital generation and robust asset quality. Coupled with
the improving operating environment in Poland, these rating strengths
sufficiently cushion against risks related to the banka€™s appetite to grow faster
than the sector.
At end-3Q13 Bank Slaski was a universal bank ranked fifth by total assets
(almost 6% market share) and had a particularly strong position in retail
savings (about 8% market share). The bank wants to increase its economies of
scale to offset pressure on earnings stemming from the low interest rate
environment in Poland, which is likely to remain unchanged in the foreseeable
future. Bank Slaski wants to maintain its universal banking business model and
plans further substantial growth.
Bank Slaskia€™s funding structure is a considerable rating strength. At end-3Q13,
almost 90% of funding came from customer deposits, of which 66% comprised mostly
stable and granular household savings. The loan/deposit ratio improved to a
comfortable 73% at end-3Q13 (end-2012: 78%), after almost 15% growth in customer
deposits in 9M13. The banka€™s low refinancing risk reflects Bank Slaskia€™s large
buffer of liquid assets (mostly sovereign risk debt securities), which equalled
35% of total assets at end-3Q13.
In Fitch's opinion, the bank's relatively conservative lending standards and
high loss-absorption capacity should contain risks related to the planned credit
growth. However, the inflow of bad debts will increase as the loan book seasons.
The banka€™s loan book has grown about 20% annually in 2010, 2011 and 2012 (much
higher than sector average), but the impaired loans ratio of 4.4% and end-3Q13
was one of the lowest among the largest banks in Poland. The coverage of
impaired loans by specific reserves stood at 60%, which in Fitcha€™s opinion is
sufficient in light of the banka€™s credit risk profile. Unreserved impaired loans
equalled 9M13 operating profit or almost 11% of Fitch core capital.
At end-3Q13, Bank Slaskia€™s Fitch core capital ratio of 18.9% was one of the
strongest in the region. However, the ratio benefits from the full
implementation (as of 30 June 2013) of the advanced internal ratings-based
method for the calculation of capital requirements for the non-retail portfolio.
We estimate that the Fitch core capital ratio based on capital requirements
calculated according to the standardised method would be about 15%.
Bank Slaskia€™s performance should remain strong in 2014, but improving operating
profit will be challenging. The bank is likely to incur somewhat higher (albeit
manageable) costs of risk, and generate lower trading revenue, but the banka€™s
focus on lending growth bodes well for net interest income.
RATING SENSITIVITIES a€“VR
A significant weakening of underwriting standards coupled with deterioration in
asset quality (following Bank Slaskia€™s fast credit expansion) or a marked and
prolonged downturn in the Polish economy would put pressure on the bank's VR.
However, Fitch does not regard these scenarios as likely at present. An upgrade
of Bank Slaskia€™s VR is unlikely in the short to medium term because of the
bank's growth ambitions.
The rating actions are as follows:
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'