Ratings has assigned Erste & Steiermarkische (ESB; BBB+/Stable) upcoming senior preferred (SP) bonds a 'BBB+(EXP)' expected long-term rating.
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The upcoming SP issue is expected to be euro-denominated with a six to seven-year maturity. The planned issue size is EUR400 million.
The assignment of a final rating is contingent on the receipt of final documents conforming to the information already received.
ESB's senior preferred (SP) debt is rated in line with its Long-Term IDR, reflecting our current expectations that ESB will predominantly use SP to meet its resolution buffer requirements and that the more junior debt buffer will be significantly below 10% of the risk-weighted assets (RWA) of ESB's resolution group.
ESB's IDRs and Support Rating (SR) reflect Fitch's view of a high probability of support, if required, from its parent, Erste Group Bank AG (Erste; A/Negative/a). At the same time, ESB's Long-Term IDR is capped at Croatia's Country Ceiling (two notches above the Croatian sovereign's 'BBB-' Long-Term IDR), reflecting transfer and convertibility risks. Without the country risk constraints, ESB would be rated one notch below the parent. The Stable Outlook on ESB's IDR reflects that on the sovereign rating.
Fitch considers Erste to be the ultimate support provider for ESB. This is based on Erste's direct (59% stake) and indirect (41% through Steiermarkische Bank und Sparkassen AG) ownership of the Croatian subsidiary. The MPE strategy adopted by Erste does not change our assumptions for intragroup support, as we still expect Erste to support ESB via pre-emptive measures, such as capital injections, guarantees or liquidity lines, should such measures become necessary.
ESB's common equity Tier 1 ratio was 17.5% at end-2020. The bank's capital structure is supplemented by around HRK1.3 billion of outstanding subordinated debt, of which around 30% is recognised as regulatory Tier 2 capital, bringing the total capital ratio to 18.7% at end-2020.
The bank's liability structure is dominated by customer deposits (around 85% of total funding at end-2020), with household deposits accounting for around 60% of total customer deposits. Senior debt already issued accounted for around 1.2% of consolidated RWA at end-2020. Additionally, in early 2021 ESB issued EUR45 million (about HRK340 million) of SP bonds equivalent to around 0.6% of end-2020 consolidated RWA.
The highest level of ESG credit relevance is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on ESB, either due to their nature or to the way in which they are being managed by ESB. ■