Investing.com -- Fitch Ratings has upgraded the Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) of Poland-based Bank Millennium S.A. from ’BB+’ to ’BBB-’ on May 28, 2025. The bank’s Viability Rating (VR) was also raised from ’bb+’ to ’bbb-’. The outlook for the Long-Term IDRs is stable.
The rating enhancement is attributed to a persistent reduction in legal risks related to foreign-currency mortgage loans. This has led to a stronger business profile for the bank, characterized by steadily improving operating profitability and a record of adequate capital buffers. Fitch believes that the bank’s medium-term strategy is not significantly hindered by these legacy risks anymore.
Bank Millennium’s ratings balance the benefits of a well-established domestic retail franchise, conservative new loan underwriting, healthy capital buffers, and adequate asset quality. Core profitability, which helps absorb significant costs related to legacy foreign-currency mortgage loans, is also taken into account.
The bank’s business profile is reflective of its traditional business model, which is focused on the domestic market and skewed towards retail customers. It ranks seventh in Poland by total assets. With legacy issues no longer obstructing strategic execution, a cautious and controlled return to a stronger growth path is anticipated.
Millennium’s underwriting standards are prudent, and its risk controls are robust. The bank primarily services private individuals in urban areas and its non-retail loan portfolio is well diversified. The residual risk related to foreign-currency mortgage loans has decreased to manageable levels.
The bank’s prudent underwriting has resulted in a stable average impaired loans ratio of 4-5% over the past decade. The ratio is expected to gradually move towards the strategic target of under 4%, supported by resumed loan growth and write-offs.
Operating profit is expected to improve to 3.1% of risk-weighted assets (RWAs) in 2025, up from 2.8% in 2024, and reach 5% in 2026. This is due to a substantial reduction of costs related to foreign-currency mortgage loans and legal risk provisions.
The common equity Tier 1 (CET1) ratio is expected to remain above 15% in the coming years, supported by a reduction in legacy legal risks and stronger internal capital generation. Millennium’s funding primarily relies on a stable and granular base of customer deposits, with a significant portion derived from non-interest-bearing current accounts.
Millennium’s senior non-preferred debt is rated in line with its IDR. The bank’s ’b+’ Shareholder Support Rating (SSR) reflects limited probability of support available from its 50.1% owner, Banco Comercial Portugues, S.A. (BCP, BBB/Positive). The rating takes into account the subsidiary’s significant size in comparison to the parent company, as it represented nearly one-third of BCP’s consolidated assets at the end of the first quarter of 2025.
Despite the upgrade, the potential for further positive rating action is currently limited. For a rating upgrade, Millennium would need to maintain a CET1 ratio comfortably above 15%, sustain higher earnings generation, and improve its asset quality. Negative rating action could be driven by a substantial and prolonged deterioration in capitalisation or an increase in the bank’s risk appetite leading to a deterioration in asset quality and materially higher credit losses.
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