Rating Action Commentary
ֳ Affirms UniCredit Bulbank at 'BBB+'; Outlook Positive
Mon 12 May, 2025 - 11:32 AM ET
ֳ - Warsaw - 12 May 2025: ֳ has affirmed Bulgaria-based UniCredit Bulbank AD's (Bulbank) Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook is Positive. ֳ has also affirmed the bank's Shareholder Support Rating (SSR) at 'bbb+' and its Viability Rating (VR) at 'bb+'. A full list of rating actions is below.
Key Rating Drivers
Shareholder Support Drives IDRs: Bulbank's IDRs and SSR are driven by potential support from UniCredit S.p.A (BBB+/Positive). The Positive Outlook mirrors that on UniCredit. Bulbank's IDRs are equalised with those of its parent, as, in ֳ's view, a default of the subsidiary would entail huge reputational risk for UniCredit. This is based on their common regulation and Bulbank's inclusion in UniCredit's single-point-of-entry resolution group. Bulbank's 'F2' Short-Term IDR is the higher of two options corresponding to its Long-Term IDR, as we view propensity of support as more certain in the near term.
Bulbank's VR balances its resilient and conservative business and risk profiles and solid financial performance with its exposure to Bulgaria's operating environment risks.
Strategically Important Subsidiary: Central and eastern Europe is a strategic region for UniCredit. Bulbank's solid performance through the cycle and good earnings prospects are underpinned by its strong market position in Bulgaria and support the group's objectives. Any support for Bulbank would be immaterial relative to the parent's resources.
Operating Environment to Improve: Bulgaria's planned eurozone accession should improve the operating environment for its domestic banks, strengthen the institutional framework and its resilience, and reinforce prospects for continued profitable operations. The accession should strengthen banks' already good liquidity position and provide flexibility for contingency planning. Business prospects are underpinned by Bulgaria's solid economic performance, reflected in rising income, and significant and structural improvements in asset quality, and materially reduced sector fragmentation.
Solid Domestic Franchise: Bulbank is one of Bulgaria's largest banks with an 18% share of sector assets at end-2024. Its business profile is underpinned by its dominant position among large corporates and its strong foothold in other segments. Bulbank's business model is diversified and has remained resilient to various shocks through economic cycles.
Operating Environment Risks: Bulbank's strong underwriting standards and sophisticated risk control framework mitigate the risks of recent rapid lending growth and the Bulgarian operating environment.
Resilient Asset Quality: Bulbank's impaired loan ratio further improved to 3.2% at end-2024 from 3.4% at end-2023, supported by recoveries, but also by rapid credit growth in the last four years. We expect the ratio to remain stable at just above 3% in 2025-2026, supported by healthy loan growth and the bank's conservative risk appetite.
Robust Profitability: Bulbank's operating profit/risk-weighted assets (RWAs) remained strong at 6.2% in 2024, supported by high business volumes and resilient margins, which offset higher credit provisions. We expect profitability to decline towards 5% on lower interest rates in 2025-2026, but it should remain strong, mainly supported by loan growth.
Strong Capital Position: Bulbank's conservative capital management and material buffers over regulatory requirements, low capital encumbrance by problem loans and strong internal capital generation underpin its capitalisation. The bank's common equity Tier 1 ratio declined on strong business growth but remained high at 21.9% at end-2024. We expect Bulbank's strong profitability prospects and capital optimisation measures to mitigate RWA inflation from further asset growth in the next two years.
Healthy Funding and Liquidity: The bank is self-funded, with stable and largely granular customer deposits (gross loans/customer deposits: of 82% at end-2024) and a generally low cost base, reflecting Bulbank's well-established franchise. Regulatory liquidity ratios remained well above regulatory requirements at end-2024.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Bulbank's Outlook could be revised to Stable if UniCredit's Outlook is revised to Stable.
Bulbank's IDRs would be downgraded if UniCredit's ratings are downgraded. They could also be downgraded on adverse changes to the resolution strategy of the group with respect to Bulbank or on a material weakening in its strategic importance to UniCredit.
Bulbank's VR has considerable rating headroom, and a downgrade would require a combination of large and structural weakening of the bank's asset quality, profitability and capitalisation. This may arise from its impaired loans ratio increasing to above 7% and its operating profit/RWAs ratio falling below 2%, both on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Bulbank's IDRs could be upgraded if UniCredit's Long Term IDR is upgraded.
An upgrade of the bank's VR would be contingent on an upward revision of our assessment of the Bulgarian operating environment, while the bank maintains its robust risk and financial profiles.
VR ADJUSTMENTS
The operating environment score of 'bb+' is below the 'bbb' implied category score due to the following adjustment reason: financial market development (negative).
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
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
Bulbank's IDRs are linked to UniCredit's IDRs.
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
| UniCredit Bulbank AD | EU Issued, UK Endorsed |