International rating agency Moody's has affirmed the ratings assigned for the first time in 2023 to Romanian financial group Banca Transilvania (BVB: TLV) and improved the outlook on the long-term deposit (Baa2) and issuer ratings (Baa3) to positive from stable.

Low dependence of market funding and high profitability balances against risks posed by foreign currency lending and lending to high-risk market segments (SMEs mainly), while the improved outlook reflects the recently issued meaningful volumes of senior non-preferred instruments.

The rating agency explains that the affirmation of the bank's Baseline Credit Assessment (ba1) reflects its robust capitalization, with tangible common equity to risk-weighted assets of 16.1% as of June 2024, and strong profitability supported by the bank's leading market position in Romania along with good cost efficiency. 

The bank further displays a very low market funding reliance (mostly driven by regulatory requirements), a granular deposit-based funding structure, and ample liquidity, with its loan-to-deposit ratio in a range of around 50% to 60% over the past few years.

These strengths are balanced against elevated asset risks related to the bank's material share of foreign-currency lending at around one-third of the loan book, as well as its credit exposure to higher-risk segments, like small businesses and consumer lending. There are also tail risks from a high share of foreign currency – mainly euro – liabilities at 41% of the total as of the end of 2023 and some concentration in the bank's liquid assets towards Romanian government securities.

The affirmation also reflects the credit impact from various acquisitions over the past year, balancing financial and strategic benefits and related integration risks.

The positive outlook on the bank's long-term deposit and issuer ratings reflects the strengthened loss protection amid recently issued meaningful volumes of senior non-preferred instruments,  now indicating potentially lower loss-given-failure for senior creditors and, if maintained as a proportion of assets, or if supported by future issuance of subordinated debt instruments, could drive additional LGF uplift for depositors and senior unsecured debt obligations.

iulian@romania-insider.com

(Photo source: Banca Transilvania)