“GBR’s IDRs are driven by its standalone profile, as reflected in its VR. The VR reflects GBR’s small size and narrow franchise in Romania, reasonable profitability and asset quality, adequate capitalisation and good funding and liquidity. In our view, GBR’s risk profile is sufficiently independent from its 100% shareholder, Turkiye Garanti Bankasi A.S. (Garanti BBVA; B+/Negative), and internal and regulatory restrictions on capital and funding transfers are sufficiently strict to allow GBR to be rated above Garanti BBVA,“ per Fitch analysts.
The negative outlook on GBR’s IDR reflects the downside risks to its credit profile as a result of the Covid-19 pandemic. The uncertainty over the depth of the damage to the Romanian economy drives our negative outlooks on the operating environment, asset quality and earnings and profitability scores. Fitch expects the Romanian economy to contract by 5.4% in 2020 and then gradually recover, with real GDP growing by 3.4% in 2021. Downside risks to our forecast remain as the resurgence of the pandemic increases the risk of further lockdowns, Fitch said in a statement.
“GBR provides a universal banking offering to retail, SME and corporate customers with fairly limited pricing power given its position as a small player in the sector. The bank plans moderate loan growth in 2021, primarily to SMEs, given its fairly cautious growth appetite since 2018 as the bank has focused on reducing risks and improving its liquidity profile. The bank continues to target more granular deposits by strengthening its retail banking franchise.”
“GBR reports reasonable asset quality metrics (non-performing loans ratio of 4.0% at end-1H20; 100% coverage of Stage 3 loans by total loan loss allowances), which compare well with the sector average (4.4%). However, the weaker economic environment has increased downside risks and we expect impaired loans to rise moderately in the short term given the bank’s exposure to SMEs and unsecured retail borrowers. The bank’s direct exposure to Turkey or Turkish entities operating in Romania represents a small share of the bank’s assets. However, Fitch’s assessment of the bank’s largest exposures indicates GBR’s exposure to borrowers linked to Turkish groups is larger, but still moderate. Nevertheless, these borrowers (typically large, diversified conglomerates) have performed well to date despite the volatile Turkish economy,” the statement also reads.
Garanti Bank Romania is the tenth bank in Romania by assets, with a market share of over 2% and assets of nearly RON11 billion.