Fitch Ratings said it has upgraded Romanian lender Banca Transilvania’s [BSE:TLV] long-term issuer default rating (IDR) to ‘BBB-‘ from ‘BB+’, with a stable outlook. Moreover, the bank’s short-term IDR was upgraded to ‘F3’ from ‘B’, while its viability rating (VR) was improved to ‘bbb-‘ from ‘bb+’, Fitch Ratings said in a statement quoted by See News.
“The upgrades reflect our improved assessment of the operating environment for Romanian banks to ‘bbb-‘ and the associated benefits for the bank’s risk and financial profiles,” the ratings agency said. “It also reflects Transilvania’s extended record of prudent risk management, including improved asset quality and solid capital metrics as well as good profitability, which we expect to continue,” it added.
The upgraded ratings reflect the lender’s strong domestic franchise, with a market share slightly above 20% of total sector assets, as well as its healthy capital buffers underpinned by strong internal capital generation and its stable funding profile. Banca Transilvania also benefits from reasonable asset quality, underpinned by conservative underwriting, Fitch explained.
The lender has a moderate risk profile thanks to its conservative risk framework and granular loan book focused on retail, SME and medium-sized corporate borrowers. However, the ratings agency noted that the bank’s exposure to the Romanian sovereign through debt securities is high and represents a source of market risk.
“The bank’s profitability was strong in 9M24 with an operating profit/risk-weighted assets (RWAs) ratio of about 6%, underpinned by a maintained high net interest margin, non-interest income growth, good cost efficiency and low loan impairment charges. We expect Transilvania’s operating profitability to soften somewhat in coming years due to pressure on margins and rising expenses, but that its operating profit will remain above 4% of RWAs,” Fitch projected.
The operating environment score for Romanian banks was also upgraded to ‘bbb-‘ from ‘bb+’, thanks to strong GDP growth, labour market resilience and the sector’s large exposure to the Romanian sovereign, which also has a rating of ‘BBB-‘ with a stable outlook.
Fitch noted that Banca Transilvania’s ratings would have to be downgraded if the sovereign rating is downgraded, as the operating environment is capped by the latter. In the absence of a sovereign downgrade, the VR could be downgraded if a sustained asset-quality deterioration would drive a structural weakening of profitability.
“The ratings could also be downgraded on a material and sustained weakening of Transilvania’s capitalisation, for example, if the bank’s CET1 [Common Equity Tier 1] ratio falls below 16% on a sustained basis,” Fitch said.
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