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Rating Action:

Moody's downgrades Bank Millennium's long-term ratings following downgrade of Portuguese parent

12 Apr 2011

Stand-alone rating affirmed with stable outlook

London, 12 April 2011 -- Moody's Investors Service has today downgraded the long- term domestic and foreign deposit ratings of Bank Millennium (Banco Comercial Portugues' (BCP) Polish subsidiary) to Baa3 from Baa2 with a negative outlook. The bank's Financial Strength Rating (BFSR) of D (mapping to a Baseline Credit Assessment (BCA) of Ba2) was affirmed with a stable outlook. The short-term rating of Prime-3 was not affected by this rating action.

This rating action concludes the review initiated on the 9th of December 2010, when Millennium's long-term ratings were put on review for a possible downgrade following a similar rating action on the parent.

The following ratings have been affected:

Bank Millennium:

- Local currency deposit rating downgraded to Baa3 from Baa2

- Foreign currency deposit rating downgraded to Baa3 from Baa2

RATINGS RATIONALE

Moody's said that the downgrade of the supported long-term ratings of Bank Millennium resulted from the two-notch downgrade of the BCA of BCP, its Portuguese parent to Ba2 from Baa3. The rating agency added that, in its estimation, the parent's ability to support its subsidiary is weaker as expressed by its now lower BCA. However, in terms of its willingness we note that BCP has been a supportive parent during the crisis as evidenced by maintaining its shareholding in the subsidiary at 65% during Millennium's capital increase of PLN 1 billion (EUR 245 million) in February 2010.

As regards the affirmation of Bank Millennium's stand-alone BFSR with a stable outlook, Moody's noted that the bank's performance improved in 2010 compared to the sharp downturn registered in 2009. The bank's capital position was bolstered by an equity injection in the early 2010 and its operating profitability increased year on year. The asset quality of bank's large mortgage portfolio remains stable.

However, Moody's said that it considers that these trends were partly supported by a general stabilisation in the Polish operating environment as the majority of its Polish peers showed similar trends in their performance in 2010.

Moody's noted that Millennium's current risk-profile which is influenced by a large, albeit reducing, portion of FX denominated mortgages (at 54% of the total loan book) and below average efficiency and internal capital creation levels remains in line with its D rated peers at this stage. The rating agency added that the bank has been diversifying its lending portfolio in SME and consumer lending but its franchise in these segments is less established compared to its Polish D+ rated peers.

Millennium's non-performing loan (NPLs) ratio (5.8% of total loans as at end-2010) compares well to its immediate and higher rated peer group. However, its provisioning coverage of NPLs remains below average (54% as at end-2010), influenced by several largest NPLs. In Moody's view, Millennium's lending practices and customer criteria prior to the crisis were not sufficiently conservative as evidenced by relatively high provisioning needs the bank registered in 2009 compared with the peer group average. Moody's also noted, however, that this increase in provisioning in Q3 2009 was partly due to the rights issue carried out in February 2010.

In terms of the funding profile, the bank's retail deposit base stagnated during 2010 and its adjusted loan-to-deposit ratio at 100% as at end-2010 (adjusted for its securitised funding) is not as strong as its D+ rated peers.

Overall, Moody's considers that Bank Millennium's current BFSR at D captures the bank's current credit profile and recent improvements in the context of stabilisation of the Polish operating environment. This is expressed in our stable outlook for the bank's stand-alone rating.

Bank Millennium's deposit ratings benefit from two notches of uplift principally due to the high probability of systemic support as the sixth largest bank in Poland in terms of total assets and fourth largest bank in terms of the branch network and retail loans and deposits. The negative outlook on its deposit rating is driven by the negative outlook on the parent's BCA.

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

Headquartered in Warsaw, Poland, Bank Millennium reported IFRS consolidated total assets of PLN46.98 billion (EUR11.8 billion) as at year-end 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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London
Irakli Pipia
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 downgrades Bank Millennium's long-term ratings following downgrade of Portuguese parent
No Related Data.
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