S&P confirms BCP rating

 In Banks, News, Ratings agencies

S&P Global Ratings has issued a rating notice for Portugal’s Banco Comercial Português confirming its current classification of ‘BB/B’.

The rating is based on the conviction that the bank has sufficient capital buffers to withstand the shocks suffered by its Polish subsidiary BM.
S&P states that the bank’s outlook remains ‘Stable’.
The agency thinks that the bank has leverage to accommodate the impact of grace periods on mortgages in Poland. BCP has also benefitted from having a solid retail brand in Portugal where it has a stronger efficiency ratio than its peers, which together with the reduction in credit risk seen in recent years should support the bank’s financial resilience.
“On 7 July 2022 the Polish government announced its decision to grant loan moratoria on Polish mortgagees on their primary residence to offset the effects of high inflation and interest rate increases with the result that Bank Millennium (not listed) will report accounting losses because of non-compliance with regulatory minimum capital ratios and because it is activating its recovery plan”, states the agency.
On 20 July Moody’s downgraded Bank Millennium’s long-term deposit ratings to Baa3 and placed ratings on review for further downgrade.
Moody’s say that the rating action follows BM’s announcement that it expects its capital ratios to drop below regulatory minimum capital requirements as a result of the implementation of new borrower-friendly legislation in Poland, the key component of which is a loan moratorium scheme for Polish Zloty (PLN) mortgage borrowers.
In Moody’s opinion, the associated erosion of the bank’s capital buffers to below the regulatory minimum, as regards the level set by the bank’s supervisory review and evaluation process (SREP), hence its Pillar 2 requirement (P2R), has significantly weakened the financial profile of BM and increased existing pressures on its capitalisation stemming from legal risks associated to its legacy Swiss Franc mortgage portfolio.
But S&P states: “while (the Polish situation) somewhat undermines the group’s profitability and capital, we expect that the reduction of the capital ratio adjusted to risk (RAC – risk adjusted capital ratio) will be modest at around 20 base points. Which is why we have confirmed our ratings for BPC at ‘BB/B in the long and short terms,” states S&P.