The Viability Rating (VR) has been upgraded to ‘bbb-‘ from ‘bb+’. A full list of rating actions is below.
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. 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, according to Fitch.
Strong Domestic Franchise: Transilvania’s ratings 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.
Improved Operating Environment: Strong GDP growth, supporting income convergence with EU averages, labour market resilience and the sector’s large exposure to the Romanian sovereign (BBB-/Stable), coupled with larger scale, reduced fragmentation of the sector and improved diversification of income streams translate into better prospects for the standalone credit profiles of Romanian banks. Consequently, we have revised the operating environment score for Romanian banks to ‘bbb-‘ from ‘bb+’, Fitch said in its Rating Action Commentary.
Leading Domestic Franchise: Transilvania is the largest Romanian bank, with a market share slightly above 20% of total sector assets. Its 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 support its record of strong performance through the cycle.
Granular Lending; Sovereign Risk: Transilvania’s moderate risk profile reflects its conservative risk framework and granular loan book focused on retail, SME and medium-sized corporate borrowers. However, the bank’s exposure to the Romanian sovereign via debt securities is high and a source of market risk.
Reasonable Asset Quality: We expect a modest weakening in Transilvania’s impaired loans ratio (end-September 2024: 2.8%) to about 3.3% over the next two years due to ageing of the portfolio, coupled with affordability pressures from still-high borrowing costs and macroeconomic challenges. Loan-quality metrics have benefited from high growth and limited generation of new impaired loans. Solid coverage by loan loss allowances should position the bank well to absorb asset quality pressures, according to Fitch.
Strong Profitability to Moderate: 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.
Strong Capital Ratios: Transilvania’s ratings capture its high capital metrics with a common equity Tier 1 (CET1) ratio of 19.6% at end-September 2024, strong reserve coverage of impaired loans and healthy profitability. We expect the CET1 ratio to remain broadly stable around these levels, supported by strong internal capital generation that will balance RWA growth and potential capital distributions, as per Fitch’s Rating Action Commentary.
Healthy Funding, Reasonable Liquidity: The bank’s funding profile is solid with a gross loans/customer deposits ratio of 62% at end-September 2024, underpinned by its robust deposit franchise with a stable and granular deposit base. Liquidity remains reasonable, comfortably covering modest refinancing needs with sizeable holdings of liquid assets (mostly cash and Romanian sovereign bonds).