Alpha Bank Romania secures stronger rating than its parent bank
Moody's also assigned Counterparty Risk Assessments (CR Assessments) of Ba2(cr)/ Not Prime(cr).
The outlook on the long-term deposit ratings is stable. Following the move, Alpha Bank Romania has become the first Greek-owned bank in Romania to be assigned rating by an international rating agency, and its deposit rating is superior to the one assigned by Moody's to its parent bank.
According to Moody's statement, ABR's BCA of b2 reflects the bank's modest financial profile characterized by high, albeit declining, level of problem loans, adequate capitalization and high reliance on parental funding. Moody's considers that the credit quality of parent banks and their subsidiaries are typically linked. Nevertheless, at the current level ABR's BCA is not constrained by the weaker credit strength of its Greek parent Alpha Bank AE (LT bank deposits Caa3 Positive; BCA caa2). The BCA differential between Alpha Bank AE and ABR also takes into account that the European Union's (EU) Bank Recovery and Resolution Directive (BRRD) -- albeit untested for subsidiary banks -- may allow for ring-fencing of strong and viable subsidiaries in the event of a resolution prompted by distress at the parent level. The rating agency currently allows ABR's BCA to be a maximum of three notches above Alpha Bank AE's BCA, reflecting ABR's brand association and material, albeit declining, financial links with its parent, but also ABR's domestically focused operations and its track record of successfully withstanding challenges to its funding and capitalization since the unfolding of the Greek banking crisis in 2010.
The bank's non-performing loans (NPL) ratio declined to 13.7% in December 2016, from 16.6% in December 2015 owing to the sale and write-off of problem loans, restructuring procedures and increased recoveries as economic conditions improve. Risks stemming from the still large stock of NPLs, as well as high share of foreign-currency lending at about 70% of total loans are partly mitigated by a moderate level of coverage, with loan loss reserves standing at 68% of NPLs as of December 2016.
Moody's expects the bank to maintain moderate profitability over the next 12 to 18 months balanced by lower provisioning cost and downward pressure on net interest income. ABR reported a net income to 114.6 million RON in 2016 translating to a return on average assets RoAA of 0.77%, after losses in 2015 and 2014. The net income was driven by gains from the sale of shares in VISA Europe and Victoriabank in Moldova (B3 Stable), as well as lower loan loss provisions and operating expenses.
Improved profitability and reduced risk exposures driven by balance sheet deleveraging in the past several years have led to higher capital ratios (including fully retained net income for 2016) with Total CAR at 23.46% and Tier 1 ratio at 17.69% as of December 2016, according to ABR.
Moody’s also indicated that ABR's deposit ratings were driven by: (1) the bank's standalone b2 BCA; (2) its b2 adjusted BCA, which is positioned in line with its BCA and incorporates no uplift from shareholder support from Alpha Bank AE due to the parent's lower caa2 BCA, although we assess the likelihood of parental support as high; and (3) the results of Moody's Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by different liability classes in resolution, and which leads to two notches of rating uplift for ABR's deposit ratings. The rating agency's assumption of a low likelihood of public support from the Romanian government, in case of need, does not result in a further notching uplift to the ratings.
The outlook on the deposit ratings is stable, reflecting Moody's expectation that the bank's standalone credit profile and notching uplift from LGF analysis will remain stable over the next 12 to 18 months.
The outlook on the long-term deposit ratings is stable. Following the move, Alpha Bank Romania has become the first Greek-owned bank in Romania to be assigned rating by an international rating agency, and its deposit rating is superior to the one assigned by Moody's to its parent bank.
According to Moody's statement, ABR's BCA of b2 reflects the bank's modest financial profile characterized by high, albeit declining, level of problem loans, adequate capitalization and high reliance on parental funding. Moody's considers that the credit quality of parent banks and their subsidiaries are typically linked. Nevertheless, at the current level ABR's BCA is not constrained by the weaker credit strength of its Greek parent Alpha Bank AE (LT bank deposits Caa3 Positive; BCA caa2). The BCA differential between Alpha Bank AE and ABR also takes into account that the European Union's (EU) Bank Recovery and Resolution Directive (BRRD) -- albeit untested for subsidiary banks -- may allow for ring-fencing of strong and viable subsidiaries in the event of a resolution prompted by distress at the parent level. The rating agency currently allows ABR's BCA to be a maximum of three notches above Alpha Bank AE's BCA, reflecting ABR's brand association and material, albeit declining, financial links with its parent, but also ABR's domestically focused operations and its track record of successfully withstanding challenges to its funding and capitalization since the unfolding of the Greek banking crisis in 2010.
The bank's non-performing loans (NPL) ratio declined to 13.7% in December 2016, from 16.6% in December 2015 owing to the sale and write-off of problem loans, restructuring procedures and increased recoveries as economic conditions improve. Risks stemming from the still large stock of NPLs, as well as high share of foreign-currency lending at about 70% of total loans are partly mitigated by a moderate level of coverage, with loan loss reserves standing at 68% of NPLs as of December 2016.
Moody's expects the bank to maintain moderate profitability over the next 12 to 18 months balanced by lower provisioning cost and downward pressure on net interest income. ABR reported a net income to 114.6 million RON in 2016 translating to a return on average assets RoAA of 0.77%, after losses in 2015 and 2014. The net income was driven by gains from the sale of shares in VISA Europe and Victoriabank in Moldova (B3 Stable), as well as lower loan loss provisions and operating expenses.
Improved profitability and reduced risk exposures driven by balance sheet deleveraging in the past several years have led to higher capital ratios (including fully retained net income for 2016) with Total CAR at 23.46% and Tier 1 ratio at 17.69% as of December 2016, according to ABR.
Moody’s also indicated that ABR's deposit ratings were driven by: (1) the bank's standalone b2 BCA; (2) its b2 adjusted BCA, which is positioned in line with its BCA and incorporates no uplift from shareholder support from Alpha Bank AE due to the parent's lower caa2 BCA, although we assess the likelihood of parental support as high; and (3) the results of Moody's Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by different liability classes in resolution, and which leads to two notches of rating uplift for ABR's deposit ratings. The rating agency's assumption of a low likelihood of public support from the Romanian government, in case of need, does not result in a further notching uplift to the ratings.
The outlook on the deposit ratings is stable, reflecting Moody's expectation that the bank's standalone credit profile and notching uplift from LGF analysis will remain stable over the next 12 to 18 months.
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