Fitch affirmed Banca Romaneasca’s short-term rating at “B,” revised the bank’s viability rating from “b” to “b-,” and affirmed its support rating at 5.
“[The] downgrade reflects the bank’s high dependence on NBG for foreign currency funding and liquidity, and considerable uncertainty as to the continued availability of this funding if Greece were to exit the European Monetary Union,” says a Fitch press release.
At the end of the first quarter, NBG accounted for 42% of Banca Romaneasca’s total non-equity funding, most of which is short-term and euro-denominated. NBG also provides foreign currency hedges to Banca Romaneasca, which are expensive and have a negative impact on the Romanian bank’s profitability and ultimately capitalization, the rating agency says.
“However, the facilities are crucial to supporting the bank’s foreign currency liquidity and maintaining the bank’s FX position within regulatory limits.”
Fitch warns of additional liquidity risk for both banks in case of a further deterioration of the situation in Greece, as a result of deposit withdrawals. However, withdrawals at Banca Romaneasca have been relatively limited “and a significant proportion of customer deposits (just above 60%) at the two banks fall under national deposit guarantee schemes, which may help to limit any outflows.”
Banca Romaneasca’s long-term rating remains one notch above that of NBG “in light of the limited contagion which the subsidiaries have suffered to date from problems at NBG and their negligible direct exposure to NBG and Greece more generally. However, contagion risk could increase significantly if Greece were to exit the eurozone.”
The agency states that Banca Romaneasca may receive support from Romanian authorities in the form of local currency liquidity, given the bank’s market share, but there is significant uncertainty whether the authorities would do so.
National Bank of Greece said its losses in Romania widened to EUR11 million in the first quarter, from EUR1 million in the year-earlier period, hurt by falling revenue from interests.
The Greek group bought a majority stake in Banca Romaneasca in 2003 and currently owns 99.279%. NBG also has indirect control of Romanian insurer Garanta and operates three other companies on the local market, namely NBG Leasing IFN, NBG Securities Romania and NBG Factoring Romania.