MOODY'S ASSIGNS RATING OF Baa2 TO GUARANTEED EUROBONDS OF KOMERCNI FINANCE B.V.
Limassol, 04-25-96 -- Moody's Investors Service assigned to Komercni Finance B.V. a rating of Baa2 for its issue of guaranteed senior Eurobonds. Moody's said the rating of the notes is based on the guarantee of the notes by Komercni Finance's parent, Komercni banka a.s. Moody's recently assigned to Komercni banka, a.s. ratings of Baa2 for long-term deposits, Prime-2 for short-term deposits, and D+ for bank financial strength. The ratings of Komercni banka a.s. reflect its strong position in its markets, its improving financial outlook, as well as the likelihood of state support if needed over the intermediate time horizon. The bank maintains major shares of the Czech banking markets -- with about 30% of loans and 25% of deposits. It has a solid capital base, and it has recently produced good profitability. The ratings also reflect the bank's still-high level of classified loans, a reduced but significant reliance on interbank and other secondary funding, the likelihood of further enterprise restructuring and transformation shake-out in the Czech Republic, and the prospect of keener competition in the Czech market especially in the large corporate sector, Moody's added.
Moody's considers the four largest Czech banks essential to the functioning of the financial system, and fundamental to the economic transformation of the Czech Republic to a market-based system. As such, although there are no formal state assurances, Moody's believes that the state would likely continue to provide assistance to these banks if necessary over the intermediate time horizon, despite the fact that it is expressly moving toward a more market oriented approach of resolving problems, and that the state ownership of these institutions will be diluted as privatization of the sector continues. The improved condition of the banks should lower the likelihood of further need for assistance, though, Moody's said.
Komercni Banka maintains leading shares of the large corporate and medium-sized business sectors. The bank's returns have been the best of the large Czech banks, although the bank's return on assets declined over the 1993 to 1995 period principally due to its declining net interest margin. Going forward, Moody's expects additional pressure on the bank's net interest margin, as the Czech markets develop and grow more competitive, particularly in the high end corporate market. The bank has been able to maintain its overhead at a moderate level, despite large increases in past years. Moody's pointed out, however, that the ratio of overhead to revenues could increase as the bank further develops its service capability and its new businesses, and as low wage levels in the Czech Republic rise. The level of loans classified as non-standard is high. Loans classified as substandard, doubtful and loss comprised 30% of total customer loans, and watch loans equaled another 10% of total loans. A high percentage of new lending has also been classified. The classified loans are fully provided according to Czech National Bank standards. However, provision requirements take into account collateral values, and under Czech law it can be difficult to foreclose on collateral.
Komercni has developed a large deposit base since 1989 when its predecessor was spun out of the then Czechoslovak State Bank with only limited primary deposits. Komercni banka's deposit base is predominately institutional, and the bank remains reliant on the interbank market for funding although this reliance has been falling steadily. Institutional clients tend to keep relatively large low-rate balances, but this market should grow more competitive over time. Rights issues have helped to increase the bank's capital over the last two years, and the bank has the largest capital base of any bank in the Czech Republic. Komercni banka reported total risk-weighted capital adequacy ratios of 8.65%, according to Czech Accounting Standards, and 10.73%, according to International Accounting Standards (IAS) at year-end 1995. Its Tier 1 ratio, based on IAS, equaled 8.3% at year-end.
Komercni banka, a.s. with approximately CZK 388 billion (approximately US$14.6 billion) of assets at December 31, 1995 is headquartered in Prague.
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