Fitch affirms rating of Banca Transilvania at BB+/stable

International rating agency Fitch has affirmed Banca Transilvania's LT Issuer Default Rating (IDR) at BB+ with a stable outlook and its viability rating (VR) at bb+ to reflect its strong and well-established domestic franchise, healthy capital buffers supported by strong internal capital generation, and a stable funding profile.

The ratings also reflect the bank's reasonable asset quality, underpinned by conservative underwriting.

The bank's funding profile is solid, with a gross loans/customer deposits ratio of about 60% at the end of September 2023, 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.

The bank, however, faces moderate business prospects and structural weaknesses, and its profitability will soften due to pressure on the net interest margin and higher operational expenses, given wage increases and the upcoming turnover tax.

The bank's high exposure to the Romanian sovereign (BBB-/Stable), meaningful sector fragmentation, low financial inclusion levels in the economy and higher-than-peers' euroisation of the economy are key structural weaknesses. The bank's exposure to the Romanian sovereign via debt securities is high and a source of market risk.

The bank's ratings could be downgraded if a sustained asset-quality deterioration drives a structural weakening of profitability.

An upgrade of Banca Transilvania's ratings would require an upward revision of the Romanian operating-environment score (bb+) while the bank maintains strong financial metrics. This could happen if risks posed by the Romanian sovereign to the banks' operating environment diminish.

(Photo source: Banca Transilvania)