BANK MILLENNIUM S.A.
Fitch Ratings has assigned
The assignment of a final rating is contingent on the receipt of final documents conforming to the information already received.
Key Rating Drivers
Millennium's SNP debt is rated in line with the bank's IDR, reflecting our expectations that the bank will use only SNP and more junior debt to meet its minimum requirement for own funds and eligible liabilities (MREL) resolution buffer.
On the consolidated level, starting from end-2023 the bank must comply with MREL requirement set at 21.64% (including the combined buffer requirement of 2.75%) of risk-weighted assets (RWA) of the resolution group, which excludes its mortgage bank subsidiary. The bank can meet part of its MREL requirements with senior preferred debt, but it is limited to a low 0.27% of RWA.
Millennium's IDRs and debt ratings balance the benefits of a well-established retail franchise and a record of adequate asset quality with an above-average exposure to non-financial risks from foreign-currency mortgage loans. A materialisation of the latter, combined with the high cost of mortgage credit holiday imposed by the authorities, has led to sizeable losses and capital erosion triggering the launch of a capital recovery plan in 2022. The bank has been progressing well with its implementation.
The Positive Outlook on the bank's Long-Term IDR reflects our base-case expectation for medium-term improvements of the bank's risk profile through a further gradual reduction of risks related to its foreign-currency mortgage loan portfolio. It also reflects our expectations that its improved core profitability will absorb ongoing legal costs and potential government intervention, leading to a further recovery of the bank's capitalisation.
The bank is in the midst of its capital recovery plan following the breach of regulatory capital buffers in mid-2022. Capitalisation metrics had partly recovered by end-1H23, with a Tier 1 ratio of 11.7% resulting in a buffer of around 150bp above the regulatory minimum (excluding Pillar 2 guidance). In our base case we expect capitalisation to recover further on a combination of improved internal capital generation and RWA optimisation.
The bank's capital structure is supplemented by subordinated debt, equivalent to about 3.3% of RWA, maturing in 2027 (PLN700 million) and 2029 (PLN830 million), which supports its regulatory capitalisation and MREL-eligible liabilities. The bank's funding structure is dominated by customer deposits (about 97% of total funding at end-1H23), with household deposits accounting for around 70% of total customer deposits.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The SNP debt rating would be downgraded if the bank's Long-Term IDR is downgraded.
The SNP debt would also be downgraded to one notch below the bank's Long-Term IDR if becomes clear that Millennium will use senior preferred debt to meet its MREL requirement while SNP and more junior debt would not exceed 10% of the Millennium resolution group's RWA on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The SNP debt rating could be upgraded if the bank's Long-Term IDR is upgraded.
ESG CONSIDERATIONS
Millennium's ESG Relevance Score for Management Strategy is '4', reflecting our view of higher government intervention risk in the Polish banking sector, which affects the banks' operating environment and their ability to define and execute on strategy. This has negative implications for the credit profile and is relevant to the rating in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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 '
(C) 2023 Electronic News Publishing, source
