Fitch Ratings improved the rating of Romanian financial group Banca Transilvania (BVB: TLV) from BB+ to BBB-, with a stable outlook, bringing the bank's shares in the investment grade area. The Viability Rating (VR) has been upgraded to bbb- from bb+.

One week earlier, Moody's confirmed its rating for TLV at the equivalent level (Baa3), furthermore assigning a positive outlook.

The new investment grade rating from Fitch reflects "improved assessment of the operating environment for Romanian banks to 'bbb-' [...] and TLV'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," the rating agency explains.

Fitch sees TLV's granular loan book and limited exposure to volatile industries as supporting the bank's record of strong performance. Notably, risks are seen as coming from the bank's exposure to the Romanian sovereign via debt securities, which is high and a source of market risk.

The rating agency expects the bank's operating profitability "to soften somewhat" in coming years due to pressure on margins and rising expenses, with its operating profit remaining above 4% of the risk-weighted assets (RWAs) from around 6% in Jan-Sep 2024.

The rating agency also expects a modest weakening in the bank's impaired loans ratio (end-September 2024: 2.8%) to about 3.3% over the next two years due to the aging of the portfolio, coupled with affordability pressures from still-high borrowing costs and macroeconomic challenges.

Absent a sovereign downgrade, Banca Transilvania's viability rating (VR) could be downgraded if a sustained asset-quality deterioration drives a structural weakening of profitability. This could result from a sustained rise in its impaired loan ratio above 4% and a fall in its operating profit/RWAs to below 2.5%.

iulian@romania-insider.com

(Photo source: Banca Transilvania)