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TEXT-Fitch:Stable outlook for CEE Banks in 2013;risks remain from Eurozone crisis & asset quality
December 20, 2012 / 9:22 AM / 5 years ago

TEXT-Fitch:Stable outlook for CEE Banks in 2013;risks remain from Eurozone crisis & asset quality

(The following statement was released by the rating agency)

Dec 20 - Fitch Ratings says that the overall outlook for banks in central and eastern Europe (CEE) in 2013 is stable, but remains bleak against a backdrop of the eurozone crisis, resulting in weaker GDP growth and deteriorating asset quality. The balance of risks remains negative in Slovenia and Hungary. Adverse trends have also continued in Bulgaria, Romania and Croatia, meaning that banks there have less flexibility to absorb shocks. For Polish, Czech and Slovak banks, the stable outlook reflects stronger asset quality, funding and performance.

Fitch expects lending growth to remain weak in 2013. In Fitch's view, the slow recovery in the eurozone economies is resulting in limited attractive lending opportunities in CEE and sluggish demand for credit. This, rather than funding constraints, has been and will remain the main driver of subdued credit growth in the region in 2013. Fitch expects slow lending growth, combined with higher funding costs, to put pressure on pre-impairment profitability for most of the markets in the region.

Fitch expects asset quality in most of the CEE banking sectors to deteriorate further in 2013. Impairment charges are also expected to remain high, even for systems where the inflow of new NPLs is likely to slow down, as the weaker economic outlook will reduce collateral valuations.

Weak growth and high impairment charges will put pressure on banks in Slovenia and Hungary in particular, where capital cushions are in many cases thin and pre-impairment profit is already weak. Banks in Slovenia have made some progress in recognising impaired loans and creating reserves, but Fitch believes there is still a need for substantial further capital injections in order to adequately provision existing and new impaired loans and maintain healthy capital buffers.

The Long-Term IDRs of CEE banks mostly reflect potential support from parent institutions, with Outlooks aligned accordingly. However, lower sovereign ratings in Bulgaria, Romania and Croatia ('BBB-') as well as in Hungary ('BB+') mean that banks' IDRs are often at Country Ceilings, and banks' Outlooks reflect those on the sovereigns.

The IDRs of CEE banks could be downgraded if their parent IDRs come under further pressure due to renewed escalation of the eurozone crisis, or clearer signs from eurozone sovereigns that bank resolutions could entail creditor losses. Conversely, a stabilisation of parent ratings could lead to Outlook changes for subsidiaries too. Bank IDRs and Outlooks in Bulgaria, Romania, Hungary and Croatia could be revised if the sovereign ratings and respective Country Ceilings changed. A downgrade of Slovenia could result in a lowering of state-owned banks' IDRs.

Continued weakening of asset quality, without strengthening of banks' capital, could result in downgrades of Viability Ratings in Slovenia, Hungary, Croatia, Bulgaria and Romania. Fitch views sharp loan deterioration in Poland, the Czech Republic and Slovakia as unlikely at present.

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