Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Romania-based, state-owned bank CEC Bank at BB/stable, its Viability Rating (VR) at bb, and Government Support Rating (GSR) at b, based on the bank’s moderate, albeit strengthening, business profile, adequate capitalisation, and reasonable funding and liquidity. This puts the Romanian bank’s rating two notches below the sovereign rating (BBB-/negative), in the non-investment area.
The positive factors partly offset its asset quality and profitability, which are weaker than its larger Romanian peers, the rating agency argued.
CEC’s risk profile is commensurate with its simple business model. Its underwriting standards are broadly in line with domestic industry norms, but lending approvals are partly decentralised, and risk controls are fairly unsophisticated, Fitch explained.
The bank’s VR and IDRs have headroom to absorb a potential one-notch downward revision of the Romanian banks’ operating environment score, which would most likely be driven by a sovereign downgrade. However, CEC’s ratings would likely be downgraded if its common equity Tier 1 ratio weakened to below 15% for an extended period and if a sharp increase in impairment charges eroded operating profitability.
The bank’s VR and IDRs could also be downgraded if the bank’s risk appetite increases materially, which may be reflected in rapid business expansion and lending growth that materially weakens asset quality.
CEC is a medium-sized, state-owned bank, operating a universal business model. Lending is primarily to non-retail borrowers and includes large exposure to public-sector entities. Funding largely comprises granular retail deposits.
iulian@romania-insider.com
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