MOODY'S ASSIGNS RATINGS TO SKB BANKA D.D. FOR LONG- AND SHORT-TERM DEPOSITS AT Baa3/PRIME-3; BANK FINANCIAL STRENGTH RATING AT D+
Limassol, 04-03-97 -- Moody's Investors Service is assigning to SKB Banka d.d. ratings of Baa3 for long-term foreign-currency deposits, Prime-3 for short-term foreign-currency deposits, and D+ for bank financial strength. Moody's said the ratings of SKB Banka are based on its prominent position in the Slovenian banking market, and its development of a national network and significant deposit base in a short time frame. The ratings also reflect its rapid growth, its need to continue to enhance efficiency as it adds products and services, as well as the transitional nature of the market in which the bank operates.
Deposit ratings are opinions of an institution's overall credit risk, and consider external credit factors (such as foreign-currency transfer risk) as well as external credit supports in addition to bank-specific elements. Bank financial strength ratings, however, are Moody's opinion of an institution's intrinsic safety and soundness on a stand alone basis, and as such, exclude external credit factors.
SKB is now the second largest bank in Slovenia with over 15% of market loans and over 10% of deposits, and in the last few years, has developed a national network of more than 50 branches.
The bank's profitability has not been particularly strong, although returns improved significantly during 1996 as loan growth caused its net interest margin to firm, and fee income increased. In addition to the positive influence on its net interest margin from loan growth, the bank has also benefited from an agreement among the banks to limit interest rates on deposits. Over the long term though interest rates should fall with inflation, and competition should accelerate and this should put pressure on margins.
Nonperforming loans appear to be moderate in comparison with banks in other developing markets of Eastern and Central Europe, and are also below average for the Slovenian market. The bank reported nonperforming loans equal to 6% of total loans at September 30, 1996, and watch loans equal to about 4% of loans. However, the level of delinquent loans is not insubstantial and loans have grown at rapid rates in a transforming market. SKB inherited little in the way of troubled loans or loans that required restructuring as did its peers.
SKB has grown a significant deposit base in a short time, and customer deposits exceed loans. The high level of foreign currency deposits compared with foreign currency lending is being reduced, although the propensity for imbalance remains because of customer preferences to hold foreign currency deposits. The bank is upgrading its information technology systems, which appear relatively advanced for its market. The renewal of the bank's information system should be completed during the next few years. The bank's control function should grow more sophisticated once installation of its integrated management information systems is completed.
The bank's risk-based solvency ratio, which equaled 14.3% at September 30, 1996, significantly exceeds regulatory minimums. In February, SKB become the first Slovenian company to issue global depositary receipts (GDRs), which are now listed on the London, Frankfurt, and Munich stock exchanges, raising about US $25 million from the issue. The bank's recent GDR issue improved its capitalization further, and increased international ownership of the bank to over 40%. However, SKB has a high level of fixed assets and capital investments relative to its equity capital, and its internal capital generation has not matched its asset growth.
SKB Banka d.d., with year-end 1996 assets of approximately SIT 208 billion (US $1.5 billion), is headquartered in Ljubljana.
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