Fitch Ratings affirms ratings of Hungary's CIB Bank, Erste

CIB Bank

Fitch Ratings has affirmed CIB Bank Zrt's Long-Term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook and upgraded the bank's Viability Rating (VR) to 'bb+' from 'bb'.

CIB Bank Zrt's IDRs and Shareholder Support Rating (SSR) reflect a high likelihood of support from its parent bank, Intesa Sanpaolo S.p.A. (ISP; BBB/Stable). The Stable Outlook mirrors that on the parent,

said the rating agency.

Stable Operating Environment: The Hungarian banks' operating environment score of 'bbb-' is underpinned by a relatively solid GDP per capita, moderate economic growth prospects and a stable banking sector. This is viewed against Hungary's small and open economy and increased uncertainty in the operating environment for banks driven by frequent state interventions.

Business Profile Weaker than Peers: CIB's market shares are moderately lower than those of its domestic peers, but its franchise benefits from being part of ISP group. Business model stability is supported by CIB's reasonable risk and financial profiles, while its high reliance on net interest income for profit generation could prove challenging in a lower interest-rate environment.

Above-Average Risk Profile: CIB's risk profile assessment reflects primarily its exposure to the risks of the domestic operating environment. The bank has conservative underwriting policies, but single-borrower concentrations tend to be higher than at higher rated and larger peers.

Contained Asset-Quality Pressures: In 2024-2025, asset quality could be moderately affected by a phase-out of the statutory loan interest-rate caps and the lagged effects of the challenging economic environment. This should be viewed in light of CIB's modest impaired loans ratio (1.7% at end-2023) and solid loan loss allowances coverage.

Weaker than Peers Profitability: The bank's record-high profitability in 2023 is likely to gradually weaken from 2024 due to margin shrinkage as market rates decline, but it should stay commensurate with an improved 'bb+' assessment.

Adequate Capitalisation: CIB's capital position is a rating strength. It is underpinned by high capital ratios, satisfactory buffers over regulatory requirements and potential ordinary support from the parent. This is considered against the bank's above-average risk profile and lower-than-peers' profitability through the economic cycle.

Erste Bank Hungary

Fitch Ratings has affirmed Erste Bank Hungary Zrt.'s (EBH) Long-Term Issuer Default Rating (IDR) at 'BBB+' with a Negative Outlook and Viability Rating (VR) at 'bb+'.

EBH's IDRs and Shareholder Support Rating (SSR) are based on potential support available from its parent, Erste Group Bank AG (Erste; A/Stable/a). However, they are capped one notch above Hungary's rating (BBB/Negative) to reflect country risks faced by domestic banks, in particular the record of state interference in the banking system. EBH's Negative Outlook mirrors that on Hungary.

Business Profile Weighs on VR: The VR captures the bank's only moderate market franchise and higher-than-peers' exposure to the cyclical commercial real estate sector and consumer lending. It benefits from EBH's prudent underwriting standards, moderate impaired loans, adequate capitalisation and limited refinancing risks, in light of the Hungarian operating environment. EBH's 'bb+' VR is below its implied 'bbb-' VR due to its business profile assessment, which has a high influence on the rating.

Stable Operating Environment: The Hungarian banks' operating environment score of 'bbb-' is underpinned by a relatively solid GDP per capita, moderate economic growth prospects and a stable banking sector. This is viewed against Hungary's small and open economy and increased uncertainty in the operating environment for banks driven by frequent state interventions.

Above-Average Risk Profile: EBH's risk profile is moderately weighed down by its higher-than-peers' exposure to commercial real estate financing and consumer lending, which leaves the bank more vulnerable to operating environment risks than peers. We have also considered the bank's high single-name loan book concentrations and appetite for inorganic expansion.

Contained Asset-Quality Pressures: In 2024-2025, asset quality could be moderately affected by a phase-out of the statutory loan interest rate caps and the lagged effects of the challenging macroeconomic environment. This should be viewed against EBH's record-low impaired loans ratio and high loan loss allowances.

Profitability to Moderate: EBH's record-high profitability in 2023 will weaken throughout 2024-2025 as one-off effects fade away and market rates decline, but it will remain relatively solid. Profit generation will be supported by recovering lending volumes and healthy asset quality, while cost pressures should moderate due to falling inflation and reduced windfall tax.

Adequate Capitalisation: EBH's capitalisation is adequate for its risk profile and is underpinned by ordinary parent support. The bank has satisfactory common equity Tier 1 (CET1) capital buffers over regulatory minimums and its leverage compares reasonably with peers.

Stable Funding and Liquidity: EBH's funding and liquidity position is supported by its moderate domestic deposit franchise, large liquidity buffers and access to ordinary parent support.

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