Rating Action Commentary
ֳ Affirms BRD-Groupe Societe Generale S.A. at 'BBB+'; Outlook Stable
Mon 04 Dec, 2023 - 10:56 AM ET
ֳ - Warsaw - 04 Dec 2023: ֳ has affirmed BRD-Groupe Societe Generale S.A.'s (BRD) Long-Term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. A full list of rating actions is below.
Key Rating Drivers
BRD's IDRs and Shareholder Support Rating (SSR) reflect potential support from the bank's majority owner, Societe Generale S.A. (SG; A-/Positive).
Strategically Important Subsidiary: BRD's SSR drives its IDRs and reflects ֳ's view that SG has a very strong propensity to support its Romanian subsidiary, if needed, given BRD's inclusion in SG's single-point-of-entry resolution group. It also reflects reputational risk for SG should its Romanian subsidiary default. The SSR also considers BRD's strategic importance to SG, majority ownership (SG holds 60.2% of BRD's equity), high level of operational and management integration, and the bank's small size relative to SG, which means any potential support would be immaterial for the group.
Country Ceiling Constraint: BRD's support-driven Long-Term IDR is constrained by ֳ's assessment of country risks, in particular transfer and convertibility risks, as reflected by Romania's Country Ceiling of 'BBB+'. BRD's Long-Term IDR is currently at the level of Romania's Country Ceiling, while the Stable Outlook reflects that on the Romanian sovereign rating (BBB-/Stable).
Short-Term IDR: BRD's Short-Term IDR of 'F2' is at the lower of the two options corresponding to a Long-Term IDR of 'BBB+', as the latter is driven by shareholder support and constrained by the Country Ceiling. We do not consider transfer and convertibility risks to be materially lower in the short term than in the long term.
Moderate Business Prospects: The strength of the Romanian economic environment is converging toward CEE levels, improving Romanian banks' moderate opportunities to consistently do profitable business. The sector's reasonable financial metrics and growth prospects are balanced against potential volatility in Romania's macroeconomic variables. Banks' high exposure to the Romanian sovereign, meaningful sector fragmentation, low financial inclusion and higher-than-peers' euroisation of the economy are key structural weaknesses.
Strong Domestic Franchise: BRD is the third-largest lender in Romania, with about 10% market share by assets at end-1H23. Its business and revenue mix largely comprise retail banking, which represented about two-thirds of the total loan book. The established business model with a granular loan portfolio, adequate risk controls, and limited exposure to volatile industries has supported its strong performance in recent years.
Reasonable Financial Metrics: BRD's impaired loans ratio reduced below 3% year to date on the back of limited new problem loans and moderate portfolio growth, while reserve coverage has remained solid and above typical levels for CEE rated banks. The bank maintains a healthy capital position (common equity Tier 1 ratio of 18.6% at end-1H23), supported by strong internal capital generation, although we expect profitability to soften due to new turnover tax and gradual contraction in the net interest margin.
Funding is primarily sourced from customer deposits, which have been generally stable. The bank's large liquidity buffer is mainly formed of repo-eligible domestic government bonds.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
BRD's Long-Term IDR and SSR would be downgraded if Romania's Country Ceiling was lowered. The Long-Term IDR and SSR could also be downgraded following a multi-notch downgrade of SG's Long-Term IDR or if BRD becomes less strategically important to its parent.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank's Long-Term IDR and SSR would require an upward revision of Romania's Country Ceiling, while the bank remained strategically important to its parent.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BRD's Long-Term IDR is capped by Romania's Country Ceiling and therefore linked to the Romanian sovereign Long-Term IDR. BRD's IDRs and SSR are driven by support from SG and therefore linked to the latter's IDR.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| BRD-Groupe Societe Generale S.A. | EU Issued, UK Endorsed |