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Rating Action:

Moody's concludes reviews on three Slovenian banks' ratings; assigns Counterparty Risk Assessments

09 Jun 2015

Actions follow conclusion of methodology-related reviews and revision of government support considerations

NOTE: On December 30, 2015, the press release was corrected as follows: In the third and fifth paragraphs of the REGULATORY DISCLOSURES section, changed the unsolicited credit ratings disclosure to: “The ratings of rated entity Nova Ljubljanska banka d.d. were not initiated or not maintained at the request of the rated entity” and “The ratings of rated entity Abanka Vipa d.d. were not initiated or not maintained at the request of the rated entity”, respectively; in the sixth paragraph of the REGULATORY DISCLOSURES section, changed the participating rated entity in unsolicited credit ratings disclosures to: “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, the rated entity Abanka Vipa d.d. or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process”. Revised release follows.

NOTE: On August 13, 2015, the press release was corrected as follows: The unsolicited and non-participating issuer disclosures as well as the rating text for the affected ratings were color-coded in purple. Revised release follows.

London, 09 June 2015 -- Moody's Investors Service has concluded its rating reviews on three banks in Slovenia: Nova Ljubljanska banka d.d. (NLB), Nova Kreditna banka Maribor d.d. (NKBM) and Abanka Vipa d.d. (Abanka). The reviews, initiated on 17 March 2015, followed the introduction of the rating agency's revised bank rating methodology published on 16 March 2015.

In light of the revised banking methodology, Moody's rating actions generally reflect the following considerations (1) the "Weak" macro profile of Slovenia (Baa3 stable); (2) the banks' modest core financial ratios; (3) the protections offered to depositors and senior creditors as assessed by Moody's Advanced Loss Given Failure (LGF) analysis, reflecting the benefit of instrument volume and subordination protecting creditors from losses in the event of resolution; and (4) Moody's view of a moderate likelihood of government support for the three institutions.

Moody's has taken the following actions on the Slovenian banks:

- Upgraded three banks' long-term local and foreign-currency deposit ratings

- Affirmed three banks' short-term local and foreign-currency deposit ratings

- Upgraded three banks' baseline credit assessments (BCAs)

- Assigned positive outlooks to the deposit ratings of two banks and stable outlook to one bank

Moody's has also assigned Counterparty Risk Assessments (CR assessments) to three Slovenian banks, in line with its revised bank rating methodology.

This full list of affected credit ratings is provided at the end of this Press Release.

Please refer to this link for the initial bank review:

https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005

Please refer to this link for the revised methodology: https://www.moodys.com/research/Banks--PBC_179038

RATINGS RATIONALE

The revised methodology includes several elements that Moody's has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.

(1) THE "WEAK" MACRO PROFILE OF SLOVENIA

Slovenian banks operate in a medium-size economy characterised with low economic strength, high institutional strength and medium susceptibility to event risk. The positive effect of improving economic conditions is partly offset by weak demand for credit and legacy portfolio of non-performing loans. The "weak" Macro Profile weighs down on the banks' individual financial ratios and thus constrains their BCAs.

(2) THE BANKS' MODEST CORE FINANCIAL RATIOS

The Slovenian banks' BCAs (the average asset-weighted BCA stands at caa1) reflect their modest core financial ratios, including a high, albeit declining, level of problem loans, good capital ratios, weak profitability and good liquidity metrics.

(3) PROTECTION OFFERED TO SENIOR CREDITORS, AS CAPTURED BY MOODY'S ADVANCED LGF LIABILITY ANALYSIS

Under its revised methodology, Moody's applies its Advanced LGF analysis to the liability structures of banks subject to operational resolution regimes. Moody's expects that Slovenia, as a member of the European Union, will introduce bank resolution legislation in line with the EU Bank Recovery and Resolution Directive (BRRD). Accordingly, Moody's applies its Advanced LGF analysis to these banks' liability structures. For one bank included in this rating action, this analysis results in "low" loss given failure for long-term deposits, taking into account the banks' substantial volume of deposit funding and the volume of securities subordinated to deposits in their liability structures. For the other two banks Advanced LGF analysis does not provide an uplift from the banks' BCAs.

(4) MODERATE LIKELIHOOD OF GOVERNMENT SUPPORT

Moody's considers the three affected Slovenian institutions, which are the largest banks in the country, domestically important due to their market shares and/or government ownership. However, given the expected implementation of a new bank recovery and resolution legislation in Slovenia, the rating agency implies only moderate government support assumption for the three banks.

--- BANK SPECIFIC ANALYTIC FACTORS

-- Nova Ljubljanska banka d.d.

The upgrade of the bank's deposit ratings to B2/Not Prime from Caa1/Not Prime reflects the combination of the following: (1) upgrade of the bank's BCA to caa1 from caa2; (2) the Advanced LGF analysis that provides one notch of uplift from the bank's BCA; and (3) Moody's assumption of moderate government support to NLB being the largest bank in Slovenia, which also provides one notch of rating uplift. The bank benefits from a large volume of deposits, and limited senior and subordinated debt, resulting in low loss given failure.

The upgrade of NLB's BCA to caa1 from caa2 reflects the bank's improved credit profile following its restructuring and recapitalisation in 2013. NLB had a Return on Assets (RoA) of 0.55% in 2014, compared to a negative 10.5% in 2013. Moody's expects that the improving economic conditions in Slovenia (Baa3 stable) will help NLB in working out its high level of problem loans, which accounted for 30.2% of the bank's gross loans at year-end 2014. NLB's capital adequacy (Tier 1 ratio was 17.6% at year-end 2014) will likely remain good supported by limited lending growth and modest profitability. NLB is largely deposit funded with net loans-to-deposits ratio of 79% at year-end 2014.

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

-- Nova Kreditna banka Maribor d.d.

The upgrade of the bank's deposit ratings to B3/Not Prime from Caa1/Not Prime reflects the combination of the following: (1) upgrade of the bank's BCA to caa1 from caa2; (2) the Advanced LGF analysis that provides no uplift from the bank's BCA; and (3) Moody's assumption of moderate government support to NKBM being the second largest bank in Slovenia, which provides one notch of rating uplift.

The upgrade of NKBM's BCA to caa1 from caa2 reflects the bank's improved credit profile following its restructuring and recapitalisation in 2013. NKBM had a Return on Assets (RoA) of 0.53% in 2014, compared to a negative 14.2% in 2013. Moody's expects that the improving economic conditions in Slovenia will help NKBM in working out its high level of problem loans, which accounted for 40.3% of the bank's gross loans at year-end 2014. NKBM's capital adequacy (Tier 1 ratio was 23.3% as reported at year-end 2014) will likely remain good supported by limited lending growth and moderate profitability. NKBM is predominantly deposit funded with net loans-to-deposits ratio of 67% at year-end 2014.

NKBM, which was nationalised as part of the government effort to recapitalise and restructure the largest banks, is in the process of privatisation, which will likely be completed by the end of 2015. Moody's will assess the implications of the bank's ownership change on its credit profile as soon as they materialise.

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

-- Abanka Vipa d.d.

The upgrade of the bank's deposit ratings to B3/Not Prime from Caa1/Not Prime reflects the combination of the following: (1) upgrade of the bank's BCA to caa1 from caa2; (2) the Advanced LGF analysis that provides no uplift from the bank's BCA; and (3) Moody's assumption of moderate government support to Abanka being the third largest and government controlled commercial bank in Slovenia, which provides one notch of rating uplift.

The upgrade of Abanka's BCA to caa1 from caa2 reflects the bank's improved credit profile following its restructuring and recapitalisation in 2013 and 2014. Following the transfer of most of its problem loans to Slovenia's Bank Asset Management Company (BAMC) Abanka's problem loans declined to 13.76% of the bank's gross loans at year-end 2014 from 46.13% at year-end 2013. Abanka reported a large EUR188 million of loss in 2014, mainly driven by high credit costs from the loan portfolio clean-up. However, the bank's profitability was also negatively affected by declining revenues. As of year-end 2014, Abanka reported a strong Tier 1 ratio of 18.78%.

Abanka is in the process of merging with Banka Celje d.d. -- a smaller Slovenian bank nationalised and restructured by the government. Whilst the merger of the two banks will increase Abank'a market shares and may improve operational efficiency in the long-term, the integration costs of the two banks will likely weigh on Abanka's profitability over the next 12-18 months.

The outlook on the bank's long-term deposit ratings is stable, reflecting the improvement in asset quality and capitalisation, but also uncertainties arising from the upcoming merger.

--- ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS

Moody's has also assigned CR Assessments to NLB, NKBM and Abanka. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than expected loss; and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

The CR Assessments for the Slovenian banks are four notches above their adjusted BCAs, and reflect the seniority of the counterparty obligations and the volume of liabilities subordinated to them under Moody's Advanced LGF framework.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The banks' ratings could be upgraded in case of (1) a sustained improvement in profitability; (2) materially stronger capital positions; and/or (3) a significant reduction in problem loans.

Downward rating pressure could emerge if (1) credit underwriting standards deteriorate noticeably; and/or (2) further 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.

- Long-term local and foreign-currency deposit ratings upgraded to B2 from Caa1

- Not Prime short-term local and foreign-currency deposit ratings affirmed

- BCA and adjusted BCA upgraded to caa1 from caa2

- CR Assessment of Ba3 (cr) / Not Prime (cr) assigned

- Positive outlook assigned to long-term deposit ratings

-- Nova Kreditna banka Maribor d.d.

- Long-term local and foreign-currency deposit ratings upgraded to B3 from Caa1

- Not Prime short-term local and foreign-currency deposit ratings affirmed

- BCA and adjusted BCA upgraded to caa1 from caa2

- CR Assessment of Ba3 (cr) / Not Prime (cr) assigned

- Positive outlook assigned to long-term deposit ratings

-- Abanka Vipa d.d.

- Long-term local and foreign-currency deposit ratings upgraded to B3 from Caa1

- Not Prime short-term local and foreign-currency deposit ratings affirmed

- BCA and adjusted BCA upgraded to caa1 from caa2

- CR Assessment of Ba3 (cr) / Not Prime (cr) assigned

- Stable outlook assigned to long-term deposit ratings

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Rated entity Nova Ljubljanska banka d.d or related third parties did not participate in the rating process. Moody's was not provided, for purposes of the rating, access to books, records and other relevant internal documents of the rated entity or related third party.

The ratings of rated entity Abanka Vipa 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, the rated entity Abanka Vipa d.d. or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its 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

Yves Lemay
MD-Banking & Sovereign
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 concludes reviews on three Slovenian banks' ratings; assigns Counterparty Risk Assessments

No Related Data.
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