Fitch has withdrawn Transilvania’s Support Rating and Support Rating Floor as they are no longer relevant to the agency’s coverage following the publication of its updated Bank Rating Criteria on 12 November 2021.
Transilvania’s IDRs and VR reflect the bank’s strong domestic market franchise, solid capitalisation, robust funding and liquidity, resilient asset quality to date and recovering profitability.
Fitch scores the operating environment for Romania at ‘bb+’, which is below the ‘bbb’ implied score, reflecting risks to macroeconomic stability over the medium term.
Transilvania is the largest Romanian bank, with about a 19% market share in total sector assets. Its traditional banking business model focuses on serving SMEs, entrepreneurs and retail clients with whom it has strong relationships. A granular loan book and limited exposure to volatile industries supports its record of solid overall performance through the cycle.
The bank’s capital position is solid, underpinned by high capital ratios (with a common equity Tier 1 (CET1) ratio of 17.7% at end 3Q21), reasonable buffers above regulatory minimums and low capital encumbrance by unprovisioned impaired loans. Internal capital generation remains solid, underpinned by the healthy recovery of the bank’s profits. The bank’s sizable exposure to the sovereign through its holdings of sovereign debt increases the vulnerability of its capital to shocks related to the sovereign and its rating. At end-3Q21, the bank’s government bonds portfolio was equal to about 3.8 times its CET1 capital, and mostly comprised Romanian sovereign bonds (BBB-/Negative).
Transilvania’s asset quality was fairly resilient to the effect of the pandemic, thanks to its conservative underwriting standards and diversified and granular loan portfolio. At-end 3Q21, the bank’s impaired loans ratio improved to 4.9%, compared with 5.5% at end-2020, on the back of accelerating growth, modest impaired loans generation and effective resolution of bad debts.
The bank’s provision coverage remains robust, with total provisions covering about 150% of impaired loans, while specific coverage was more moderate at about 62%. The bank has buildup allowances on performing loans (IFRS Stage 1&2) to account for potential risk coming from borrowers vulnerable to the economic effects of the pandemic. Transilvania has granted loan moratoria, which accounted for about 14% of the bank’s loan portfolio at their peak. However, by end-3Q21 most of these had returned to repayment, with only about 0.1% of gross loans still having payments suspended.
Profitability has shown solid recovery, as earnings benefited from improved lending growth in 2021 and the cost of risk fell, driven by solid recoveries on bad debts. In 9M21 the bank’s operating profit to risk-weighted assets ratio increased to 4.4%, from 2.8% in 2020. This improvement was underpinned by robust recoveries, which limited loan impairments, and higher revenues driven by loan growth and transaction volumes.
Transilvania’s funding and liquidity remain rating strengths. The bank is predominantly funded by stable and granular customer deposits. The strong funding profile is reflected in a low gross loan/customers deposits ratio of 51% at end-3Q21. Transilvania’s liquidity is ample, comprising mostly Romanian government bonds and placements with the central bank. Basel liquidity ratios (liquidity coverage ratio, net stable funding ratio) remain well above regulatory minimum requirements, while liquid assets covered about 50% of customer deposits at end-3Q21.
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