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Rating Action:

Moody's affirms Siauliu Bankas' Baa2 deposit rating; outlook changed to positive

17 Feb 2021

Stockholm, February 17, 2021 -- Moody's Investors Service, ("Moody's") has today affirmed the Siauliu Banka, AB's (Siauliu) deposit ratings of Baa2/P-2. Furthermore, the rating agency affirmed the Baseline Credit Assessment (BCA) and Adjusted BCA of ba1. The Counterparty Risk Ratings of Baa1 and Counterparty Risk Assessments of Baa1(cr) were also affirmed. The outlook on the long term deposit rating changed to positive from stable.

The rating affirmation follows the change of the macro profile of Lithuania to Strong- from Moderate and reflects the bank's improving fundamentals in terms of asset risk and capital, which have remained resilient despite shocks in the economy from the Coronavirus pandemic. These considerations are balanced against a high level of non-performing loans.

The positive outlook on Siauliu's long-term deposit ratings reflects Moody's expectation that the bank will: maintain a strong capital position with tangible common equity to risk weighted assets of around 18%; demonstrate a resilient profitability, with net income to tangible banking assets of at least 1.5%; and, successfully manage asset risk and risk appetite with a problem loans to gross loans ratio of below 6%.

For a detailed list of the affected ratings please refer to the end of this press release.

RATINGS RATIONALE

BASELINE CREDIT ASSESSMENT

The affirmation of the ba1 BCA and Adjusted BCA incorporates the Strong- macro profile. Lithuania's economy has outperformed most European peers during the pandemic, allowing Siauliu to continue improving its problem loans to gross loans ratio to 5.1% at the end of September 2020, from 5.3% at the end of 2019, and 6.2% in 2018.

Furthermore, both profitability and capital remain strong, with net income equal to 1.5% of tangible banking assets, albeit down from 2.0% for 2019, and tangible common equity to risk weighted assets of 18.2% at the end of September 2020. We expect capital to stabilize and remain at around 18% over the medium term. Siauliu Bankas' sound funding and liquidity is underpinned by a deposit-based funding model, although our BCA reflects the relatively high share of corporate deposits, which tend to be more volatile than retail deposits.

Moody's decision to revise Lithuania's macro profile to Strong- from Moderate+ follows the upgrade of Lithuania's issuer and senior unsecured rating to A2 from A3, on 12 February 2021. This rating action reflects Lithuania's strong medium-term growth prospects and Moody's expectation that Lithuania's debt burden will remain lower than that of most A2 rated peers notwithstanding the impact of the crisis, with fiscal strength supported by strong debt affordability metrics and a reduction of foreign currency debt.

LOSS GIVEN FAILURE (LGF)

Siauliu Bankas' depositors are likely to face very low loss given failure because of the bank's high volume of junior deposits, meaning that losses would be spread over a large depositor base. As a result, the deposit ratings of Baa2 includes two notches of rating uplift due to LGF.

The CRR and CRA are positioned three notches above the adjusted BCA, as indicated by LGF.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to an upgrade include: Siauliu Bankas' ratings could be upgraded should the bank maintain its current profitability and capitalization alongside a continuing resilience in terms of its problem loan ratios over coming quarters.

Conversely, downward pressure on Siauliu Bankas could develop if the operating environment deteriorated significantly, resulting in a significant deterioration in the bank's asset quality, profitability or capital. Furthermore, the rating could come under pressure if the risk appetite of the bank was to increase, resulting in a weakening of its asset quality and or increase volatility in its earnings.

The ratings could also be downgraded due to lower volumes of loss absorbing liabilities protecting creditors and depositors in case of failure.

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Affirmations:

..Issuer: Siauliu Bankas, AB

.... Adjusted Baseline Credit Assessment, Affirmed ba1

.... Baseline Credit Assessment, Affirmed ba1

.... Counterparty Risk Assessment, Affirmed P-2(cr)

.... Counterparty Risk Assessment, Affirmed Baa1(cr)

.... Counterparty Risk Rating (Foreign Currency), Affirmed P-2

.... Counterparty Risk Rating (Local Currency), Affirmed P-2

.... Counterparty Risk Rating (Foreign Currency), Affirmed Baa1

.... Counterparty Risk Rating (Local Currency), Affirmed Baa1

.... ST Deposit Rating (Foreign Currency), Affirmed P-2

.... ST Deposit Rating (Local Currency), Affirmed P-2

....LT Deposit Rating (Foreign Currency), Affirmed Baa2, outlook changed to positive from stable

....LT Deposit Rating (Local Currency), Affirmed Baa2, outlook changed to positive from stable

Outlook Actions:

..Issuer: Siauliu Bankas, AB

....Outlook, Changed To Positive From Stable

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mattias Eric Frithiof
AVP-Analyst
Financial Institutions Group
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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