OREANDA-NEWS. December 22, 2015. Fitch Ratings says the overall Rating Outlook for banks in central and eastern Europe (CEE) is Stable for 2016. The proportion of Stable Outlooks for banks has increased in 2015 following downgrades in May 2015 as a result of downward revisions of Support Rating Floors (SRFs) in the EU. Banks with Positive Outlooks are support-driven Hungarian banks and Commerzbank AG subsidiaries in Poland.

Issuer Default Ratings (IDRs) driven by Viability Ratings (VRs) are predominantly on Stable Outlook, including some where a subsidiary is rated above, or in line with, its parent. The exception is Bank Ochrony Srodowiska (Poland), whose IDRs are on Negative Outlook.

Most CEE banks' Long-term IDRs and Outlooks continue to reflect potential support from parent institutions, which remain committed to the CEE even if strategies towards some parts of the broader region may change. However, bank ratings are capped at two notches above the sovereign in Bulgaria and Romania, and one notch above in Hungary. In these markets, banks' Outlooks (Stable in Bulgaria and Romania; Positive in Hungary) reflect those on sovereign ratings.

Sector outlooks are generally stable as systemic risks continue to recede and inflows of new NPLs have reduced. Loss-absorption capacity has improved with largely stable pre-impairment profitability and stronger capital positions. However, operating environments remain difficult, lending growth is subdued and resolution of legacy portfolios is progressing slowly. Risks related to consumer protection, and other potential regulatory and administrative actions, still exist and may resurface in 2016.

Underlying pre-impairment profitability remains solid for Czech Republic, Slovakia, Poland and Bulgaria. Lower impairment charges supported profitability in Hungary, Slovenia and Romania. Fitch expects these trends to continue in 2016.

Profitability may suffer in 2016 from planned fiscal charges (particularly Poland), potential adverse legislation on foreign-currency mortgages (Poland) and NPL sales/collection (Romania), and the effect of local asset quality reviews (AQRs; Bulgaria, Romania). In contrast, a lower fiscal burden should support banks' profitability in Hungary.

Capitalisation has strengthened following moderate deleveraging (Romania, Bulgaria and Slovenia), improved internal capital generation (across the region) and restrictions on dividend payments (Poland). The introduction of additional regulatory capital buffers underpins loss-absorption capacity. Funding positions will continue to become more balanced as domestic customer deposits replace parent facilities.