Bank Pekao upgraded to BBB+ by Fitch on improved Polish outlook
Investing.com -- Fitch Ratings has upgraded Bank Pekao S.A.’s Long Term Issuer Default Rating (IDR) to ’BBB+’ from ’BBB’ and its Viability Rating to ’bbb+’ from ’bbb’ on Friday. The rating agency also raised Pekao’s National Long-Term Rating to ’AA(pol)’ from ’AA-(pol)’.
The upgrade extends to Pekao’s fully owned mortgage bank subsidiary, Pekao Bank Hipoteczny S.A., which saw its Long-Term IDR rise to ’BBB+’ from ’BBB’ and National Long-Term Rating to ’AA(pol)’ from ’AA-(pol)’. The Outlook on all ratings is Stable.
This rating action primarily reflects Fitch’s improved assessment of the Polish operating environment, which was upgraded to ’bbb+’ from ’bbb’. The agency cited diminishing legal and government intervention risks in Poland’s banking sector, which it expects will no longer materially affect banks’ business prospects.
Fitch noted that Pekao’s ratings are driven by its strong competitive position as Poland’s second-largest bank, with a market share of 11%-12% in sector loans and deposits. The bank maintains a seasoned business model focused on traditional commercial banking activities with consistent results.
The rating agency highlighted Pekao’s conservative risk appetite, stable deposit-based funding, and robust liquidity as positive factors. However, weaker-than-peers’ asset quality and moderate risk-weighted regulatory capital metrics remain rating weaknesses.
Pekao’s impaired loan ratio stood at 4.3% at the end of March 2025, which Fitch expects to remain broadly stable over the next two years. The bank’s common equity Tier 1 ratio was 16.2% at the end of March 2025, providing a reasonable buffer above increasing requirements.
The bank’s profitability has benefited significantly from higher interest rates due to its substantial portion of variable-rate loans and moderate repricing of deposits. This has pushed operating profit to cyclical highs of above 4.5% of risk-weighted assets over the past two years. Fitch expects this ratio to remain above 4% in 2025 and 2026, despite projected interest rate cuts.
Pekao’s funding profile benefits from a strong deposit franchise, low loans/deposits ratio of 68% as of March 2025, healthy liquidity buffers, and demonstrated access to wholesale funding markets.
Fitch noted that the intended reorganization of PZU (WA:PZU) Group, of which Pekao is a part, toward a bancassurance model is at an early stage, and given numerous hurdles, its potential impact is not considered in Pekao’s ratings.
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