S&P lowers Pekao’s outlook after Poland’s rating change

S&P Global Ratings downgrades Bank Pekao’s outlook to negative

S&P Global Ratings changed Bank Pekao’s outlook to negative after revising Poland’s rating. At the same time, the agency affirmed the bank’s long-term and short-term ratings at A-/A-2.

The so-called resolution counterparty ratings were also affirmed at A/A-1. In practice, this means an assessment of the bank’s creditworthiness in the context of a possible orderly resolution of a financial institution.

The senior subordinated debt rating also remained unchanged at BBB, as did the subordinated debt ratings at BBB-.

The agency said the negative outlook reflects its view that if Poland’s rating were downgraded, Pekao’s ratings would be cut as well. In S&P’s view, the bank is no more resilient than the Polish state.

The statement also noted that Bank Polska Kasa Opieki would be vulnerable to the situation facing the state because of its concentration of lending activity in the domestic market and a significant portfolio of Polish government bonds on its balance sheet.

S&P reminded that the change in Poland’s rating outlook stems from rising risks that rapidly growing public debt could limit the government’s ability to respond to economic shocks and weaken economic growth. The agency also added that under its methodology it generally caps the ratings of domestically focused banks at the sovereign rating level, unless the bank maintains liquidity and capitalization at levels the regulator deems acceptable even under a sovereign stress scenario.