Fitch Ratings has affirmed Czech Republic-based Ceska Sporitelna's (CS) and Komercni Banka's (KB) Long-term Issuer Default Ratings (IDR) at 'A' and Ceskoslovenska Obchodni Banka's (CSOB) Long-term IDR at 'A-'. The Outlooks are Stable, reflecting those of the parent banks. The ratings are driven by the high likelihood of support from parent banks. The agency has also affirmed the banks' Viability Ratings at 'bbb+'. A full list of rating actions is at the end of this comment.
CS's Long-term IDR is equalised with that of its 98% shareholder, Group Bank AG (EB; 'A'/Stable), reflecting CS's particularly strong integration into (446,5 CZK, 1,13%), its high strategic importance to the Austrian bank, substantial contribution to the group's balance sheet and income statement and EB's full ownership of the subsidiary.
KB's Long-term IDR is driven by potential support from its majority shareholder, (23,23 EUR, 6,32%) (SG; 'A+'/Stable). At end-H111, SG had about 60.4% ownership and the rest was publicly held. The one notch difference between the ratings of SG and (3450 CZK, 0,88%) reflects the high probability of such support being forthcoming, if required.
CSOB's Long-term IDR is driven by potential support from its sole shareholder, (18,66 EUR, -0,51%) Bank (KBCB; 'A'/Stable Outlook). The one notch difference between the ratings of KBCB and CSOB reflects the high probability of such support being forthcoming, if required. A public offering for a minority stake in CSOB is no longer being considered by KBCB following an amendment of the restructuring plan of the wider Group, approved by the European Commission.
The banks' Viability Ratings reflect their broad domestic franchises with the leading positions in their selected segments (the three banks altogether accounted for more than half of the sector assets at end-H111), solid profitability which proved to be resilient through the crisis, stabilisation in asset quality, sound capital and liquidity positions with the healthy loan/deposit ratios being in the 67%-77% range (sector average of 79% at end-H111). The Viability Ratings also factor in sizeable exposure to the property market, although mainly as the result of residential mortgage lending, and pressures from the slow recovery in domestic demand.
The highly open nature of the Czech economy makes it dependent on the growth dynamics of its major trading partners, in particular those from the euro zone, including Germany. Fitch is forecasting real GDP expansion in the Czech Republic to remain moderate at 2.1% in 2011 and 1.7% in 2012, rising to 2.5% in 2013, with exports to be the main driver of economic growth.
Fitch's outlook for the Czech banking system remains stable, reflecting the sector's healthy fundamentals, ensuring its stability and a solid degree of resilience to external shocks. Sector impaired loans (defined as the bottom three of five regulatory categories) remained largely unchanged in Q211 at 6.6% of end-H111 loans, supported by the return to economic growth and suggesting loan impairments have peaked already. The sector's capitalisation continued to improve in H111, reflecting moderate growth and solid earnings, with the Tier 1 and total capital adequacy ratios being strong at around 15% and 16% at end-H111, respectively, despite large dividend payouts.
Any changes in the parent banks' IDRs would directly affect those of their Czech subsidiaries. Upside potential for the banks' Viability Ratings is currently limited by the uncertain prospects for euro zone economies with the potential indirect pressures on the banks' business development, performance and asset quality. However, in Fitch's view, the banks' Viability Ratings would at their current levels be resilient to a moderate deterioration in the operating environment.
Ceska Sporitelna
Long-term foreign currency IDR: affirmed at 'A'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Viability Rating: affirmed at 'bbb+'
Individual Rating: affirmed at 'C'
CSOB
Long-term foreign currency IDR: affirmed at 'A-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
Support Rating: affirmed at '1'
Viability Rating: affirmed at 'bbb+'
Individual Rating: affirmed at 'C'
Komercni Banka
Long-term foreign currency IDR: affirmed at 'A'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Viability Rating: affirmed at 'bbb+'
Individual Rating: affirmed at 'C'
(Source: Fitch Ratings, Bloomberg)