Rating Action: Moody’s upgrades Alpha Bank Romania deposit ratings to Ba2 from Ba3, outlook changed to stable

06 Mar 2019 Limassol, March 06, 2019 – Moody’s Investors Service („Moody’s”) has today upgraded the long-term local and foreign currency deposit ratings of of Alpha Bank Romania S.A. (ABR) to Ba2 from Ba3 and its Baseline Credit Assessment (BCA) to b1 from b2. The bank’s long-term Counterparty Risk Rating (CRR) has also been upgraded to Ba1 from Ba2 and its long-term Counterparty Risk Assessment (CRA) to Ba1(cr) from Ba2(cr). The bank’s Not Prime short-term deposit ratings and CRR and its short-term Not Prime(cr) CRA have been affirmed. The outlook on the long-term deposit ratings has been changed to stable from positive. The upgrade follows the upgrade of the ratings of Alpha Bank AE (Deposit ratings: to Caa1 stable from Caa2 positive, BCA: to caa1 from caa2), the parent bank of Alpha Bank Romania. For the rating action on the Greek parent see the press release ‘Moody’s takes positive rating actions on Greek banks’ dated 5 March 2019 (https://www.moodys.com/research/Moodys-takes-positive-rating-actions-on-Greek-banks–PR_395717 ). Despite ABR’s strong financial profile of ba2, its b1 BCA is constrained by the weaker credit profile of its Greek parent bank, to three notches above the parent bank’s caa1 BCA. A full list of affected ratings is provided at the end of the press release. RATINGS RATIONALE UPGRADE OF ABR’s BCA TO b1 REFLECTS STRONGER CREDIT PROFILE OF PARENT BUT CONTINUED CONSTRAINTS DUE TO MOODY’S ASSESSMENT OF GROUP INTERLINKAGES By upgrading ABR’s BCA to b1 from b2, Moody’s has taken into account the strengthening of the parent bank’s standalone credit profile reflected in Alpha Bank AE’s improved BCA of caa1, while maintaining a three notches cap between the two banks’ standalone assessment. This analytical approach reflects the rating agency’s view of the strong correlation between subsidiaries and their weaker parents, mainly as a result of reputational and funding risks. ABR’s unconstrained ba2 standalone financial profile captures the bank’s improved solvency and profitability, its weaker than peers funding profile as well as its resilient performance over time despite challenges to its capitalization and funding since the unfolding of the Greek crisis. ABR’s asset risk has improved significantly with the ratio of nonperforming loans to gross loans declining to 5.95% of gross exposure as of September 2018, from 13.3% as of December 2016, broadly in line with the 5.6% ratio of problem loans of Romanian banks as of September 2018. However, the coverage ratio for nonperforming exposures, at 47% remains below the system average of around 58% as of September 2018. ABR’s asset risk is elevated by large exposures to single borrowers and high concentrations in its loan book to the cyclical and higher risk real estate and construction sectors. The bank maintains adequate capital buffers with the Tier 1 ratio at 20.8% as of September 2018, above the 17.8% Tier 1 ratio of Romanian banks as of September 2018 and significantly above its total capital regulatory minimum requirement. In 2019 the bank’s profitability will be under pressure due to the newly introduced bank tax effective as of 1 January 2019. Following net profit of RON215 million (EUR47 million) resulting in a return on assets of 1.4% in 2017, Moody’s expects the bank’s profitability in 2018 to be weaker than 2017 due to a one-off tax expense. For the first six months of 2018 the return on assets was 0.7%. Although reduced, ABR maintains a significant reliance on funding from its parent bank which elevates its funding risk. Funding from its parent bank, mostly in the form of deposits and predominantly eurodenominated, declined to a still high 26% of total balance sheet as of year-end 2017 from 35% as of year-end 2016 (2015: 59%) while ABR’s loans to deposits ratio was 110% as of H1 2018. Although reduced from 120% as of year-end 2017 (2016: 144%) it remains significantly higher than the 74% average ratio for Romanian banks as of December 2018. TWO NOTCHES UPLIFT FOLLOWING THE APPLICATION OF MOODY’S ADVANCED LOSS GIVEN
FAILURE ANALYSIS MAINTAINED DESPITE PLANNED COVERED BOND ISSUANCE The upgrade of ABR’s deposit ratings to Ba2 from Ba3 incorporates: 1) the upgrade of the BCA to b1, 2) the continued benefits from two notches of uplift following the application of Moody’s Loss Given Failure Analysis, and 3) unchanged assumptions of a low likelihood of support from the government of Romania (Baa3, stable) in case of need which does not provide further rating uplift. ABR is subject to the European Bank Resolution and Recovery Directive (BRRD), which allows the use of bailin tools to resolve a bank. Moody’s applies its standard assumptions for European banks to ABR’s liabilities and has incorporated in its analysis the bank’s planned EUR200 million covered bond issue which the bank expects to complete by the end of the first half of the year. Despite the increase in secured borrowings, the bank’s liability waterfall continues to indicate a very low loss in resolution resulting in two notches of rating uplift. OUTLOOK CHANGED TO STABLE FROM POSITIVE The outlook on ABR’s long term deposit ratings has been changed to stable from positive and is aligned with the stable outlook on the parent bank’s ratings. Assuming unchanged inter-linkages between parent and subsidiary bank and given the constraint resulting from the weaker credit profile of the parent bank, positive pressure on ABR’s deposit ratings can only result simultaneously with positive rating action on its parent Alpha Bank AE. WHAT COULD LEAD IN AN UPGRADE/DOWNGRADE ABR’s deposit ratings could be upgraded owing to an upgrade of its parent and consequently its own BCA, or an increase in uplift resulting from the application of Moody’s Advanced LGF analysis owing to additional volume of senior or subordinated instruments, which would buffer depositors resulting in a lower loss in resolution. ABR’s deposit ratings could be downgraded owing to a downgrade of its BCA or a reduction in uplift as a result of our Advanced LGF analysis. ABR’s BCA could experience downward pressure (1) if the bank’s financial fundamentals worsen mainly owing to weakening of its asset quality, reduced capital buffers and/or an increased reliance on parental funding or (2) as a result of a downgrade of Alpha Bank AE’s caa1 BCA, or (3) owing to changes in the bank’s liability structure, mainly a reduction in the volume of deposits or subordinated instruments resulting in higher loss given failure in resolution for depositors. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. LIST OF AFFECTED RATINGS Issuer: Alpha Bank Romania S.A. ..Upgrades: …. Adjusted Baseline Credit Assessment, Upgraded to b1 from b2 …. Baseline Credit Assessment, Upgraded to b1 from b2 …. Long-term Counterparty Risk Assessment, Upgraded to Ba1(cr) from Ba2(cr) …. Long-term Counterparty Risk Rating, Upgraded to Ba1 from Ba2 …. Long-term Bank Deposits, Upgraded to Ba2 from Ba3, Outlook Changed To Stable From Positive ..Affirmations: …. Short-term Counterparty Risk Assessment, Affirmed NP(cr) …. Short-term Counterparty Risk Rating, Affirmed NP …. Short-term Bank Deposits, Affirmed NP
..Outlook Action: ….Outlook Changed To Stable From Positive REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Melina Skouridou, CFA Asst Vice President – Analyst Financial Institutions Group Moody’s Investors Service Cyprus Ltd. Porto Bello Building 1, Siafi Street, 3042 Limassol PO Box 53205 Limassol CY 3301 Cyprus JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Carola Schuler MD – Banking Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Investors Service Cyprus Ltd. Porto Bello Building 1, Siafi Street, 3042 Limassol PO Box 53205 Limassol CY 3301 Cyprus JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY’S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODELBASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY’S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY’S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees,
agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.