The agency stated:
“The upgrade reflects our belief that the agreed sale of NPEs and the pricing of an additional Tier 1 (AT1) instrument represent meaningful steps for BoC in reducing the inherent tail risks associated with holding a large stock of unproductive exposures. The sale and expected new issuance also contribute to strengthening the bank’s financial profile, namely its asset quality and capitalization.”
It is expected that the Bank’s NPE ratio to decline to around 38% after the transaction on a pro forma basis from 43% at end-June 2018. It is also forecasted that the Bank’s NPE ratio which will continue to decline over the next couple of years, reaching about 23%-26% by end-2020.
Furthermore, S&P anticipates that the Bank’s risk-adjusted capital (RAC) ratio will benefit from the €220 million successful pricing of an AT1 instrument by 80 basis points, helping “the bank to absorb the impact on its capitalization of the NPE sale.”
Specifically, S&P stated:
“The agreements on the NPE sale and on the private placement of the AT1 instrument are important milestones that reinforce investor confidence and support our good opinion on the effectiveness of the bank`s management team and on its ability to deliver against its targets.”