CSOB's Long-term IDR is driven by potential support its
currently sole shareholder, KBC Bank (KBCB; 'A'/Stable). KBCB
plans to make a public offering of a minority stake in CSOB in
the near term, in line with the restructuring plan of the wider
KBC Group, approved by the European Commission. However, the
commitment and degree of integration between the parent bank
and its Czech subsidiary is unlikely to change, at least in the
near term, in Fitch's view, as reflected in the one notch
difference between KBCB and CSOB.
The banks' Individual Ratings reflect their robust domestic
franchises (the three banks together accounted 52% of the
sector assets at end-H110), resilient core profitability,
improvements in capital adequacy, sound funding profiles and
comfortable liquidity positions. The Individual Ratings also
factor in increase in impaired loans which, however, have
remained at manageable levels and shown signs of stabilisation
by end-H110, and sizeable exposure to the real estate sector.
In Fitch's view, the Czech banking sector has demonstrated
significant resilience to external shocks during the global
financial crisis, based on its generally sound credit
fundamentals. Sector impaired loans (defined as the bottom
three of five regulatory categories) grew to 6.2% at end-H110
from 4.4% at end-H109, driven by the 4% contraction of the
economy in 2009. However, asset quality has deteriorated less
than in most other central and eastern European countries,
supported by the more moderate leverage of the economy, low
levels of foreign currency lending and somewhat less rapid
pre-crisis growth. The economic outlook is also now more
favourable, which should help to limit any further significant
increase in impaired loans. Real GDP returned to growth in
Q110, and Fitch is forecasting an expansion of 1.6% in 2010,
strengthening to 2.7% in 2011 and 3.5% in 2012.
If the banks continue to demonstrate stabilisation or
improvement in asset quality trends in a broadly favourable
economic environment, and provided that the current appetite
for risk or the current risk profile does not worsen, then the
banks' Individual ratings could be upgraded. Downside risk to
Individual ratings is currently limited, as further increases
in loan impairments are unlikely to be sufficient to
significantly undermine banks' stand-alone financial strength,
in Fitch's view.
In Fitch's rating criteria, a bank's standalone risk is
reflected in Fitch's Individual ratings and the prospect of
external support is reflected in Fitch's Support ratings.
Collectively, these ratings drive Fitch's Long- and Short-term
IDRs.
The rating actions are as follows:
Ceska Sporitelna
Long-term foreign currency IDR: affirmed at 'A'; Outlook
Stable
Short-term foreign currency IDR: affirmed at 'F1'
Support Rating: affirmed at '1'
Individual Rating: affirmed at 'C'
Ceskoslovenska Obchodni Banka
Long-term foreign currency IDR: affirmed at 'A-'; Outlook
Stable
Short-term foreign currency IDR: affirmed at 'F2'
Support Rating: affirmed at '1'
Individual Rating: affirmed at 'C'
Komercni Banka
Long-term foreign currency IDR: affirmed at 'A'; Outlook
Stable
Short-term foreign currency IDR: affirmed at 'F1'
Individual Rating: affirmed at 'C' Support Rating: affirmed
at '1'
