Capitalization has been strengthened through a subordinated loan from Erste Bank. However, Fitch believes that capitalization is still just adequate and new capital injections could still be needed to maintain the capital adequacy ratio above 10% and also to provide a buffer against potential risks and pressures on profitability in a deteriorating operating environment”, Fitch said.

The rating agency has downgraded BCR’s individual rating to ‘D’ from ‘C/D’, which reflects the impact of significantly increased credit impairment charges on its operating profitability and capitalization. Fitch has also affirmed the bank’s long-term foreign and local currency issuer default ratings ‘BBB’, with negative outlook.

Fitch has affirmed short-term foreign currency issuer default rating at ‘F3’ and ‘Support 2’.

“Like its Romanian peers, BCR has been affected by the impact of significantly increased credit impairment charges on its operating profitability and capitalisation, which is reflected in the downgrade of the Individual rating today. BCR's regulatory capital adequacy ratio according to Romanian Accounting Standards equalled 10.38% at end-H109 (12.7% under IFRS)”, Fitch said.

BCR's IDRs and Support Rating are based on the high potential support by its majority shareholder, Austria-based Erste Group Bank AG (Erste Bank, 'A'/Stable), in case of need. Nevertheless, the IDRs are constrained by Romania's Country Ceiling 'BBB' and the Outlook on BCR reflects that of the sovereign.

Fitch Ratings also mentioned the positive factors such as the bank’s strong domestic franchise, good efficiency and comfortable liquidity “owing to stringent regulatory measures and the bank’s liquidity management”.

“Erste Bank's funding and capital commitment in the context of Romania's IMF stand-by Agreement provides additional comfort. Loan growth slowed in 2008 and H1, 2009 due to lower loan demand in a contracting economy. The proportion of foreign currency (FC) loans remained at 55% at end-H109, and although below the sector average of 58%, they would nevertheless present an asset quality problem, should the Romanian leu see a sharp and sustained depreciation”, rating agency pointed out.

Asset quality markedly deteriorated in 2008 and throughout the first half this year, mainly due to a contracting economy and rising unemployment.