Rating Action Commentary
ֳ Revises Banca Transilvania's Outlook to Negative; Affirms IDR at 'BBB-'
Fri 20 Dec, 2024 - 12:11 PM ET
ֳ - Warsaw - 20 Dec 2024: ֳ has revised Banca Transilvania S.A.'s (Transilvania) Outlook to Negative from Stable, while affirming its Long-Term Issuer Default Rating (IDR) at 'BBB-' and the Viability Rating (VR) at 'bbb-'. A full list of rating actions is detailed below.
The Negative Outlook on Transilvania's Long-Term IDR follows ֳ's revision of the Outlook on Romanian sovereign Long-Term IDR to Negative from Stable on 17 December 2024 (see: ֳ Revises Romania's Outlook to Negative; Affirms at 'BBB-' at ).
The Negative Outlook on the Romanian sovereign led to a negative revision of the operating environment (OE) outlook for Romanian banks. The OE is assessed at 'bbb-' and capped at the sovereign rating. It will be revised lower should the sovereign be downgraded.
ֳ believes that considering the large exposure of Transilvania to the Romanian sovereign (around 3.6x of common equity Tier 1 (CET1) at end-September 2024) downward pressure on the Romanian sovereign rating and the OE adds downside risks to Transilvania's business and risk profiles, capitalisation, funding and liquidity profile.
Key Rating Drivers
Transilvania's VR and IDRs reflect its strong and well-established domestic franchise, healthy capital buffers supported by strong internal capital generation, and stable funding profile. They also reflect the bank's reasonable asset quality, underpinned by conservative underwriting.
For more details of Key Rating Drivers, see the latest rating action commentary on 19 November 2024 (see ֳ Upgrades Banca Transilvania to 'BBB-'; Outlook Stable at ).
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The bank's ratings would be downgraded if the Romanian sovereign is downgraded, as our OE is capped by the sovereign rating. Absent a sovereign downgrade, the VR could be downgraded if a sustained asset-quality deterioration drives a structural weakening of profitability. This could result from a sustained rise in its impaired loans ratio above 4% and a fall in its operating profit to below 2.5% of risk-weighted assets (RWAs).
The ratings could also be downgraded on a material and sustained weakening of Transilvania's capitalisation, for example, if the bank's CET1 ratio falls below 16% on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of the bank's VR is currently unlikely and would require a further upward revision of the Romanian OE score. This is unlikely as it would necessitate an upgrade of the Romanian sovereign, which currently has a Negative Outlook.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The long-term rating on Transilvania's senior non-preferred notes is aligned with the bank's Long-Term IDR, reflecting our expectations that Transilvania will predominantly use senior non-preferred and more junior debt to meet its resolution buffer requirements, which are likely to exceed 10% of RWAs. At end-September 2024, we estimate that this buffer amounted to 16% of RWAs.
Transilvania's Government Support Rating (GSR) of 'no support' reflects ֳ's view that due to the implementation of the EU's Bank Recovery and Resolution Directive, senior creditors of Transilvania cannot rely on full extraordinary support from the sovereign if the bank becomes non-viable.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The senior non-preferred debt rating is sensitive to changes in the bank's IDRs. In addition, it could be downgraded to one notch below the Long-Term IDR if it becomes clear that the buffer of senior non-preferred and more junior debt would no longer exceed 10% of RWAs on a sustained basis.
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. However, this is highly unlikely, given existing resolution legislation.
VR ADJUSTMENTS
The earnings & profitability score of 'bbb' is below the 'a' implied category score due to the following adjustment reason: revenue diversification (negative).
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.
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
| Banca Transilvania S.A. | EU Issued, UK Endorsed |