Current Report No. 18/2012

14 June, 2012

Fitch takes a rating action on Bank Zachodni WBK S.A.

The Management Board of Bank Zachodni WBK hereby informs that on 14 June 2012: Fitch Ratings has downgraded the Long-term IDR of Bank Zachodni WBK S.A. (BZ WBK) to 'BBB' from 'A-'. The Outlook on the rating is Stable. The agency has also affirmed BZ WBK’s Viability Rating (VR) at ‘bbb’ and removed it from Rating Watch Negative (RWN).

The rating actions follow the downgrade of BZ WBK’s parent Banco Santander (Santander, rated ‘BBB+’/Negative) and Fitch’s assessment of the credit profile of the entity emerging from the planned merger of BZ WBK and KB. In Fitch’s view the recent downgrade of Santander (see ‘Fitch Downgrades Santander & BBVA to 'BBB+'/Negative Outlook on Sovereign Action’, dated 11 June 2012 on reduces its ability to provide support to BZ WBK and the merged bank. However, Fitch believes that Santander’s propensity to provide support remains high, given the strategic importance of Polish banking operations to Santander.

BZ WBK’s IDRs are now based on the bank’s intrinsic strength reflected in its VR of ‘bbb’. The affirmation of BZ WBK’s VR and the Stable Outlook on its Long-term IDR reflect Fitch’s view that the merged entity's stand-alone credit profile would be broadly in line with the current VR of BZ WBK, albeit marginally weaker as a result of the incorporation of KB.

The merged bank would become the third-largest bank in Poland. The stronger franchise and greater scale create the potential for improved efficiency. Based on end-2011 data the merged bank would have a loan to deposit ratio of around 93% and liquidity position able to easily absorb changes in the funding structure stemming from the need to gradually replace direct funding from KBC. The reported impaired loans ratio for the merged bank would still be below market average (6.7% vs 7.3%), albeit moderately weaker than for BZ WBK. Provision coverage of impaired exposures would remain at reasonable level with uncovered part at moderate 18% of Fitch core capital (FCC).

The merger would result in reduced exposure to commercial real estate relative to Fitch core capital. The exposure to foreign currency-denominated mortgages would increase to around 22% of total gross loans, but would still be much lower than for local peers with VRs at ‘bbb-’. Capitalization of the merged bank would be solid, with FCC ratio at around 13.4%. The planned capital injection of around PLN332m from EBRD, would increase FCC ratio by additional 45bp.

Within Fitch's base case scenario, BZ WBK's ratings will not be impacted by any further possible downgrade of Santander's Long-term IDR, given the agency's view of only moderate contagion risk for BZ WBK from negative developments at Santander. BZ WBK's ratings would only be likely to come under negative pressure if Santander is downgraded to sub-investment grade, which Fitch does not anticipate at present.

An upgrade of BZ WBK’s VR and IDRs is unlikely in the short to medium term, given the challenges of integrating KB, the moderate negative impact of the merger and pressure on Santander's credit profile. BZ WBK could be downgraded if there is further escalation of the eurozone crisis, which could result in increased impairment charges due to a less supportive operating environment. Fitch notes that a further marked deterioration in the credit profile of Spain and Santander could also give rise to somewhat greater contagion risk for BZ WBK, and may increase execution risks related to the planned merger.

The rating actions are:

Bank Zachodni WBK S.A.

Long-term foreign currency IDR: downgraded to ‘BBB’ from 'A-', Outlook Stable
Short-term foreign currency IDR: downgraded to ‘F3’ from 'F2'
Viability Rating: affirmed at 'bbb', removed from RWN
Support Rating: downgraded to ‘2’ from '1'

Additional information is available at

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16 August 2011, are available at

Legal basis:
§ 5 clause 1 point 26 of the Finance Minister’s of 19 February 2009 on current and periodic reports published by the issuers of securities and the rules of equal treatment of the information required by the laws of non-member states

Santander Bank Polska S.A. with its registered office in Warsaw, al. Jana Pawła II 17, 00-854 Warszawa, registered by the District Court for the capital city of Warsaw, 12th Commercial Division, set up under regulation of the Council of Ministers of 11 April 1988 on setting up Bank Zachodni in Wrocław (Journal of Laws of 1 July 1988, No. 21, item 142), registered under KRS number 0000008723, REGON 930041341, NIP 896 000 56 73, share capital of PLN 1,020,883,050 paid-up in full. Helpline: 1 9999 – fee as per the operator’s tariff.

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