Fitch Ratings has assigned Banca Transilvania S.A.'s (Transilvania; BB+/Stable/bb+) upcoming senior non-preferred (SNP) issuance a 'BB(EXP)' expected long-term rating.

The assignment of a final rating is contingent on the receipt of final documents conforming to the information already received.

The bonds are expected to be euro-denominated instruments issued under the bank's Euro Medium Term Note Programme.

Key Rating Drivers

Transilvania's SNP debt is rated one notch below the bank's Long-Term Issuer Default Rating (IDR). This is in line with the baseline notching as per Fitch's Bank Rating Criteria and reflects: i) no full depositor preference in Romania; ii) our expectation that the bank's resolution buffer may include senior preferred debt along SNP and more junior instruments; and iii) our view that that SNP and more junior instruments will not sustainably exceed 10% of Transilvania's resolution group risk-weighted assets (RWAs). The SNP debt rating is one notch below the bank's Long-Term IDR to reflect the risk of below-average recoveries in a resolution.

Transilvania's fully loaded resolution requirements under minimum requirement for eligible liabilities (MREL), binding from 1 January 2024, are set at 24.71% of its RWAs (excluding the combined buffer requirement (CBR), currently at 5% of RWA), with a subordination requirement set at 21.21% of RWAs. The bank's allowance to use senior preferred debt and its high levels of CET1 capital mean it is unlikely in our view that the bank will build up a combined buffer of SNP and more junior debt that sustainably exceeds 10% of RWAs.

Transilvania's ratings reflect its strong and well-established domestic franchise, solid capital position supported by resilient internal capital generation and healthy funding profile. It also factors in the bank's reasonable asset quality, underpinned by conservative underwriting (see 'Fitch Affirms Banca Transilvania at 'BB+'; Outlook Stable' published on 16 December 2022 at www.fitchratings.com).

At end-2022, Transilvania's common equity Tier 1 (CET1) ratio stood at 18.4% and total capital ratio at 20.8%, on a consolidated basis. The bank met its end-2022 interim MREL target (of 18.8% excluding CBR) with regulatory capital, subordinated debt (no longer Tier 2 eligible) and senior debt. The bank's liability structure is dominated by customer deposits (around 94% of total funding at end-2022), of which two-thirds comprised household deposits.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Downgrade of Transilvania's Long-Term IDR.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upgrade of Transilvania's Long-Term IDR.

Change in Transilvania's MREL requirements or funding plans, particularly if it becomes clear that the bank will not use senior preferred debt to meet its resolution buffer or if we expected the bank to build-up and maintain a buffer of SNP and more junior debt that sustainably exceeded 10% of RWAs.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, 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 the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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