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Rating Action:

Moody's affirms three Slovenian banks' ratings

10 Feb 2016

Actions follow change of Slovenia's Macro Profile to "Weak+" from "Weak"

London, 10 February 2016 -- Moody's Investors Service has today affirmed the long-term deposit ratings of three banks in Slovenia: Nova Ljubljanska banka d.d. at B2, Nova Kreditna banka Maribor d.d. at B3 and Abanka d.d. at B3.

Concurrently, Moody's has affirmed the banks' baseline credit assessments (BCAs). The banks' Counterparty Risk (CR) Assessments, short-term deposit ratings and outlooks are unaffected.

The full list of affected credit ratings is provided at the end of this press release.

RATINGS RATIONALE

Moody's says that today's affirmations reflect (1) the fact that the improvement in Slovenia's Macro Profile has not led to immediate changes in the banks' ratings owing to weak loan demand and high levels of problem loans; and (2) the protection stemming from Slovenian banking legislation, which establishes full depositor preference over senior unsecured debt instruments.

-- STRONGER MACRO PROFILE AND PROTECTION PROVIDED BY BANKING LEGISLATION

Moody's change of Slovenia's Macro Profile to "Weak+" from "Weak" was driven by the improvement in the Slovenian banks' operating environment, particularly the country's economic strength. The strengthening of the Macro Profile led Moody's to review the affected Slovenian banks' financial metrics and standalone credit profiles, in order to assess the impact of this change on the banks' ratings.

According to Moody's, the more benign economic environment will help Slovenian banks stabilise their credit fundamentals, albeit at weak levels. However, it is unlikely to lead to material improvements in the banks' credit profiles in the short-term. Slovenia's banking industry remains challenged, as loan demand is weak and banks are burdened with high levels of problem loans. The rating agency says that the improvement in the Macro Profile has not therefore led to immediate changes in banks' ratings. The effect of improved operating environment over the past few years has already been reflected in the positive outlook on two (Nova Ljubljanska banka d.d. and Nova Kreditna banka Maribor d.d.) of the three rated banks.

The affirmation of the banks' deposit ratings also reflects Moody's analysis of Slovenia's legislation, which subordinates certain creditors to depositors in a resolution scenario, as captured by Moody's Advanced Loss Given Failure (LGF) analysis. The protection provided by the Slovenian banking legislation establishes full depositor preference over senior unsecured debt instruments. The rating agency considers that the full depositor preference will remain unchanged after the transposition of the Bank Recovery and Resolution Directive (BRRD) in Slovenia in 2016.

Moody's has taken into consideration the rank ordering of liabilities in a bank resolution scenario by amending the capital structure used in its Advanced LGF analysis, in accordance with full depositor preference. Previously, Moody's "de jure" scenario reflected the pari passu ranking of deposits and senior debt. Moody's amended Advanced LGF analysis has not resulted in changes to the affected banks' deposit ratings because they do not have any subordinated debt and the amount of senior unsecured debt that could limit losses on deposits in a resolution scenario is very limited.

--- BANK-SPECIFIC ANALYTIC FACTORS

-- Nova Ljubljanska banka d.d.

The affirmation of Nova Ljubljanska banka d.d.'s (NLB) B2 long-term deposit rating reflects the combination of the following: (1) the affirmation of its caa1 BCA; (2) the Advanced LGF analysis, which provides one notch of uplift from the bank's BCA; and (3) Moody's assumption of a moderate likelihood of government support for NLB, as Slovenia's largest bank, which also provides one notch of rating uplift. The Advanced LGF analysis reflects the full depositor preference in the event of bank resolution. The bank's deposit ratings benefit from a large volume of deposits and limited senior debt, resulting in low loss given failure.

The affirmation of NLB's caa1 BCA reflects the bank's weak, albeit improving, credit profile following its restructuring and recapitalisation in 2013. NLB reported a 62% increase in net income for the first nine months of 2015 compared to the same period in 2014, resulting in a 0.9% Return on Assets (ROA). The high level of problem loans, which accounted for 28% of the bank's gross loans in Q3 2015, will likely entail additional loan loss provisions. Limited lending growth and modest profitability will underpin NLB's good capital adequacy with its Tier 1 ratio at 15.9% as of Q3 2015. NLB is largely deposit-funded, with a gross loan-to-deposit ratio of 91.1% in Q3 2015.

The outlook on the bank's long-term deposit ratings remains positive, reflecting the improvement in asset quality and capitalisation.

-- Nova Kreditna banka Maribor d.d.

The affirmation of Nova Kreditna banka Maribor d.d.'s (NKBM) B3 long-term deposit rating reflects the combination of the following: (1) affirmation of its caa1 BCA; (2) the Advanced LGF analysis, which does not provide any rating uplift from the bank's BCA; and (3) Moody's assumption of a moderate likelihood of government support for NKBM as one of Slovenia's three largest banks, which provides one notch of rating uplift. The Advanced LGF analysis reflects the full depositor preference in the event of bank resolution. NKBM's deposits are likely to face a moderate loss given failure, due to the loss absorption provided by the large volume of deposits and limited senior debt.

The affirmation of NKBM's caa1 BCA reflects the bank's weak, albeit improving, credit profile following its restructuring and recapitalisation in 2013. NKBM reported a modest RoA of 0.51% for the first nine months of 2015, pressured by declining net interest income. Moody's considers that the more benign economic conditions in Slovenia will help NKBM to work out its high level of problem loans, which accounted for 41.5% of the bank's gross loans in Q3 2015 and entail additional loan loss provisions. Limited lending growth and modest profitability will underpin NKBM's good capital adequacy; its Tier 1 ratio was 25.1% as reported in Q3 2015. NKBM is predominantly deposit--funded, with a gross loan-to-deposit ratio of 81.6% in Q3 2015.

In June 2015, the Slovene Sovereign Holding (the shareholder of NKBM on behalf of the government), Apollo Global Management LLC (Apollo) and the European Bank for Reconstruction and Development (EBRD) signed an agreement concerning the sale of a 100% shareholding of the Republic of Slovenia in NKBM. According to the agreement, Apollo acquires 80% of the bank, while EBRD purchases the remaining 20%. The acquisition will likely receive regulatory approval in 2016. Moody's will assess the implications of the bank's ownership change for its credit profile as soon as they materialise.

The outlook on the bank's long-term deposit ratings remains positive, reflecting the improvement in its asset quality and capitalisation.

-- Abanka d.d.

The affirmation of Abanka d.d.'s B3 long-term deposit rating reflects the combination of the following: (1) the affirmation of its caa1 BCA; (2) the Advanced LGF analysis, which does not provide any rating uplift from the bank's BCA; and (3) Moody's assumption of a moderate expectation of government support for Abanka, as one of Slovenia's three largest banks, which provides one notch of rating uplift. Moody's based its Advanced LGF analysis on full depositor preference in the event of bank resolution. Abanka's deposits are likely to face a moderate loss given failure due to the loss absorption provided by the large volume of deposits.

The affirmation of Abanka's caa1 BCA reflects the bank's improved asset quality and capitalisation, as well as uncertainties arising from its merger with Banka Celje d.d.in October 2015. Banka Celje was a smaller Slovenian bank, which was nationalised and restructured by the government.

Most of Abanka's problem loans were transferred to Slovenia's Bank Asset Management Company (BAMC) in 2014, reducing their share of the bank's gross loans to 13.76% at year-end 2014 from 46.13% at year-end 2013. Although both Abanka and Banka Celje returned to profit in 2015 (following large losses in 2013 and 2014), declining net interest income constrained their earnings. As of Q3 2015, Abanka reported a strong Tier 1 ratio of 21%.

The merger of the two banks will increase Abank's market share and may improve its operational efficiency in the long-term. However, over the next 12-18 months, the integration costs will likely weigh on Abanka's profitability.

The outlook on the bank's long-term deposit ratings is stable, reflecting the improvement in its asset quality and capitalisation, as well as uncertainties arising from the merger with Banka Celje.

-- WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's could upgrade the banks' ratings in case of (1) a sustained improvement in profitability; (2) solid capital positions; or (3) a significant reduction in problem loans.

Downward rating pressure could emerge if (1) credit underwriting standards deteriorate noticeably; or (2) asset quality and profitability pressures emerge owing to a potential weakening in the operating environment.

LIST OF AFFECTED CREDIT RATINGS

Nova Ljubljanska banka d.d.

- B2 long-term local and foreign-currency deposit ratings affirmed with positive outlook

- caa1 Baseline Credit Assessment affirmed

Nova Kreditna banka Maribor d.d.

- B3 long-term local and foreign-currency deposit ratings affirmed with positive outlook

- caa1 Baseline Credit Assessment affirmed

Abanka d.d.

- B3 long-term local and foreign-currency deposit ratings affirmed with stable outlook

- caa1 Baseline Credit Assessment affirmed

Outlook Actions:

..Issuer: Nova Ljubljanska banka d.d.

....Outlook, Remains Positive

..Issuer: Nova Kreditna banka Maribor d.d.

....Outlook, Remains Positive

..Issuer: Abanka d.d.

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 of rated entity Nova Ljubljanska banka d.d. were not initiated or not maintained at the request of the rated entity.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis, Nova Ljubljanska banka d.d. or their agents are considered to be non-participating entities. These rated entities or their agents generally do not provide Moody's with information for the purposes of their ratings process.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis Abanka d.d. or their agents are considered to be participating entities. These rated entities or their agents generally provide Moody's with information for their ratings process.

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

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.

Armen L. Dallakyan
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms three Slovenian banks' ratings
No Related Data.
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