Romanian state-owned bank CEC Bank (CEC) has obtained for the first time a rating from international agency Fitch as a necessary step ahead of planned bond issue aimed at helping it diversify its financing base.

Fitch has assigned the bank Long-Term Issuer Default Rating (IDR) of 'BB' with Stable Outlook, Viability Rating (VR) of 'bb' and Government Support Rating (GSR) of 'b'.

The rating agency has priced in the bank's IDR and VR CEC's "moderate albeit strengthening business profile, solid capitalization and reasonable funding and liquidity profile.

"On the downside, the bank's asset quality and profitability are weaker than the sector, the rating agency says.

The bank's risk profile is said to be commensurate with the bank's "relatively simple business model," with underwriting standards broadly in line with domestic industry standards, but with somewhat decentralized lending approval, coupled with relatively unsophisticated risk controls.

The bank is seen by Fitch as operating a traditional universal bank business model with lending skewed towards the non-retail segment, including significant exposure to public sector entities, funded largely by retail customer deposits.

The strength of the bank's franchise is boosted by a significant branch network outside of the largest cities, where competitive pressure is lower as a greater proportion of the population is underbanked. As a result, the bank is able to generate a good level of fee and commission income, despite a fairly basic product range.

"[The] rating reflects the solid financial position, the good level of liquidity and the sustainable business model, given that the bank supports its activity mainly based on sources attracted from non-bank customers and has the largest territorial network in the country, with a share over 25% in the total number of banking units in Romania," CEC says in a press release.

In 2019, CEC Bank began an extensive modernization and transformation program. In the last three years, the bank has managed to increase its market share - from 6.50% in 2018 to 7.9% at the end of 2021 and recorded a 72% increase in banking assets. At the same time, the bank's profits increased to record levels of over RON 350 million annually during 2019-2021.

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iulian@romania-insider.com