Fitch Ratings has affirmed
A full list of rating actions is below.
Key Rating Drivers
Support Drives IDR: CAnb's IDRs and Shareholder Support Rating (SSR) reflect Fitch's view of a very high probability of support from its ultimate parent,
Modest Franchise Focused on Mortgages: CAnb's VR is supported by its conservative risk appetite, strong asset quality and adequate capitalisation, which benefits from ordinary support from its shareholders. Our assessment of the bank's franchise considers the benefits of it being part of CA, but it is constrained by CAnb's small size and niche business model, which limit pricing power and profitability.
Conservative Risk Profile: CAnb's risk profile reflects conservative underwriting standards. The bank has invested to improve its risk controls and systems, including a new core banking system launched in 2022 that will support growth, particularly in Swiss cantons other than those nearest to
Healthy Asset Quality: Asset quality is sound, with an unchanged impaired loan ratio of 1.1% at end-2022, and has remained stable in recent years. CAnb's asset quality benefits from low levels of arrears and the loan book being secured on residential properties in
Weak Profitability Likely to Improve: Profitability is moderate and remains a rating weakness. The bank's operating profit increased to 0.7% of risk-weighted assets (RWAs) at end-2022, having been supported by rising interest rates. We expect the ratio to increase to around 0.8% through the cycle as CAnb benefits from stronger net interest margins, greater scale and increased fee and foreign-exchange income. We expect increased profitability to be mitigated by higher loan impairment charges.
Adequate Capital Ratios: CAnb's common equity Tier 1 (CET1) ratio of 18.6% at end-2022, calculated under Swiss GAAP, is adequate for the bank's risk profile and provides a solid buffer over regulatory requirements. We expect the bank to continue to benefit from ordinary capital support from its shareholders, if needed, to support its growth strategy. CAnb's leverage ratio of 7.3% is sound and compares strongly with peers.
Funding and Liquidity Support: CAnb benefits from ordinary support from CA group entities, which provides about half of the bank's funding needs. We believe this funding is stable and will remain available to CAnb, mitigating the bank's high loan-to-deposit ratio (end-1H23: 282%).
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
CAnb's IDRs and SSR would be downgraded if CA's IDRs were downgraded. The ratings could also be downgraded if CA's propensity to provide support to CAnb decreases.
CAnb's VR would come under pressure if the bank is unable to consistently achieve an operating profit greater than 0.5% of RWAs. We could also downgrade the VR if asset quality deteriorates and risk appetite increases substantially, which could be indicated by high loan growth, or if ordinary support from shareholders is materially reduced.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
CAnb's IDRs and SSR would be upgraded if CA's IDRs were upgraded. The ratings could also be upgraded if CA's propensity to provide support to CAnb increases, such as through further integration, which we do not expect in the medium term.
An upgrade of CAnb's VR is unlikely in the near term unless its franchise and business model strengthens and results in materially improved earnings and profitability.
VR ADJUSTMENTS
The 'bbb' business profile score is above the 'bb' category implied score due to the following adjustment reason: group benefits and risks (positive)
The 'a-' capitalisation & leverage score is below the 'aa' category implied score due to the following adjustment reason: size of capital base (negative)
The 'bbb+' funding & liquidity score is above the 'b & below' category implied score due to the following adjustment reason: liquidity access and ordinary support (positive)
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
CAnb's IDRs and SSR are driven by shareholder support from CA.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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