Erste Bank Polska planned Tier 2 notes win Fitch expected BBB- rating

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Erste Bank Poland Tier 2 notes

Highlights

Fitch Ratings assigned Erste Bank Polska S.A.'s proposed subordinated Tier 2 notes an expected BBB-(EXP) rating, two notches below the viability rating of bbb+.
The notes, set to mature in 2036 with a call in 2031, will qualify as Tier 2 regulatory capital and rank as direct, unsecured, subordinated obligations.
Fitch may downgrade the notes' rating if Erste Bank Polska's viability rating falls or assessment of loss severity worsens, while upgrades require improved viability or greater parent support.

Proposed debt issue and rating rationale

As reported by Fitch Ratings, Erste Bank Polska S.A.'s planned subordinated Tier 2 notes have been assigned an expected rating of BBB-(EXP), with the final rating contingent on receipt of final documents that match the information already reviewed.

Fitch says the notes are rated two notches below the bank's viability rating of bbb+, in line with its bank rating criteria. The agency applies the two-notch reduction for loss severity, reflecting weak recovery prospects in the event of failure, and says it does not apply additional notching for non-performance risk because the notes lack going-concern loss-absorption features such as coupon omission or deferral.

Fitch adds that the viability rating anchor reflects Erste Group Bank AG's multiple-point-entry resolution strategy and material uncertainty over whether shareholder support would extend to Tier 2 bondholders.

Capital structure implications and rating sensitivities

The subordinated notes are intended to qualify as Tier 2 regulatory capital and will constitute direct, unsecured, unconditional and subordinated obligations of Erste Bank Polska. The planned instrument is set to mature in 2036 and includes a call right in 2031.

Fitch says the notes' rating would be downgraded if Erste Bank Polska's viability rating were downgraded. The rating could also change if the agency revises its assessment of loss severity or the relative non-performance risk of the instrument, while an upgrade would depend on an improvement in the bank's viability rating or a more favorable view of parent support for Tier 2 bondholders.

Our earlier report on Hainan Rubber’s proposed subordinated perpetual sustainable securities explained why Fitch rated the planned notes two notches below the issuer rating, citing their lower ranking in the capital structure and the issuer’s ability to defer coupons. We also highlighted Fitch’s view of the group’s leverage and liquidity profile, alongside the role of parent/state-linked support considerations in the rating framework.

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