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Rating Action:

Moody's downgrades ratings of four Slovenian banks, negative outlook

23 Dec 2011

Action follows downgrade of Slovenian sovereign debt rating

London, 23 December 2011 -- Moody's Investors Service has today downgraded the debt and deposit ratings of three Slovenian commercial banks following the one-notch downgrade of the Slovenian government's sovereign debt rating to A1 with negative outlook, from Aa3.

The affected commercial banks are Nova Ljubljanska banka, Nova Kreditna banka Maribor and Abanka Vipa. In addition, Moody's has today also downgraded the issuer and senior unsecured ratings of SID Banka, a government-owned specialised development bank, to A1 with a negative outlook from Aa3 in line with the sovereign rating action.

These downgrades complete the review for downgrade initiated by Moody's on 26 September 2011. At the same time, the standalone bank financial strength rating (BFSR) of Abanka was downgraded to E+ (mapping to B1 on the long-term scale) with a stable outlook, from D- (mapping to Ba3 on the long-term scale).

In addition, Moody's has also downgraded the government-guaranteed debt rating of Factor banka by one notch to A1 from Aa3 with a negative outlook.

A full list of the affected long-term and short-term debt and deposit ratings, including subordinated, junior subordinated debt and government-guaranteed debt ratings is provided at the end of this press release.

RATINGS RATIONALE

RATIONALE FOR DOWNGRADES

The key driver of these rating actions is the downgrade of the Slovenian government's sovereign rating by one notch to A1 with a negative outlook from Aa3 [http://www.moodys.com/research/Moodys-downgrades-Slovenias-credit-ratings-to-A1-negative-outlook--PR_234317]. The downgrade implies that the government has less financial flexibility and would likely face more difficult policy choices if multiple institutions were to need its financial support at the same time.

Moody's also takes into account constraints placed by the ongoing financial crisis in the euro area on the medium-term capacity and willingness of European Union member states, including Slovenia, to support senior creditors of institutions by providing ongoing funding support and capital injections to the banking system. It is important to note that Moody's continues to assume that support will be forthcoming for Slovenian banks, if needed. Prior to today's rating actions Moody's incorporated extraordinarily high systemic support of up to four notches in the supported ratings of these banks. However, following today's rating action Moody's now factors in 2-3 notches of systemic support in the supported ratings of Slovenian banks, thus bringing the uplifts to a level that the rating agency deems more appropriate with the evolving support environment and regional peers.

-- NOVA LJUBLJANSKA BANKA (NLB)

Consistent with the one-notch downgrade of the sovereign rating, Moody's has adjusted the long-term deposit ratings of NLB downwards by one notch to Ba1 and assigned a negative outlook. As a result, NLB's long-term deposit rating now benefits from a three-notch uplift from the bank's B1 standalone rating, down from four notches previously. This level of systemic support reflects the government's continued status as the key direct and indirect shareholder in the bank, and the increase in its shareholding to 61% further to the capital injection in March 2011. In addition, Moody's notes that NLB holds a dominant market share, with almost 32% of the country's non-banking deposits as at June 2011. NLB's BFSR of E+ (mapping to B1) was not affected by this rating action and retains a stable outlook.

-- NOVA KREDITNA BANKA MARIBOR (NKBM)

Moody's has downgraded the long-term deposit rating of NKBM by one notch to Ba1 from Baa3 with a negative outlook, resulting in a two-notch uplift from the bank's Ba3 standalone rating, down from three notches previously. This uplift reflects NKBM's position as being directly and indirectly majority-owned by the government and its position as the second-largest franchise in Slovenia. NKBM's BFSR of D- (mapping to Ba3) was not affected by this rating action and retains a negative outlook.

-- ABANKA VIPA

The two-notch downgrade of Abanka's long-term deposit rating to Ba2 from Baa3 with a negative outlook was driven by a combination of the sovereign rating action and the downgrade of the bank's standalone BFSR by one notch to E+ (mapping to B1 on the long-term scale) with a stable outlook from D- (mapping to Ba3 on the long-term scale). As a result, Abanka's supported ratings now benefit from a two-notch uplift from the bank's standalone rating, down from three notches previously. This support uplift results from the government's indirect stake of approximately 26% in Abanka, as well as the bank's demonstrated ability to qualify for government-guaranteed funding facilities in the past.

In downgrading Abanka's BFSR, however, Moody's notes that the bank's stand-alone credit profile has weakened over the past year, with the bank posting losses of EUR40 million for the first three quarters of 2011 due to increased provisioning. The bank has struggled to remain profitable in light of a deteriorating trend in asset quality and declining provisioning coverage. In addition, Abanka's loan-to-deposit ratio (at 137% as at H1 2011) is one of the worst compared to those of its domestic peers, and the bank is facing a sizeable refinancing event with EUR350 million government-guaranteed bonds maturing in September 2012. Although the refinancing risk is mitigated by the bank's ample holdings of liquidity, the ongoing turmoil in the euro area and the absence of alternative sources of refinancing create additional pressure on the bank to scale down its growth plans. The downgrade places Abanka's BFSR at the same level as that of NLB, which also remained loss-making during 2011.

-- SID BANKA

Moody's has downgraded the issuer and senior unsecured ratings of SID Banka, a government-owned specialised development bank, by one notch to A1 with a negative outlook from Aa3, in line with the action taken on the sovereign rating. The rating action and rating sensitivities of SIB banka are directly correlated with those of the government.

This reflects Moody's view that the Slovenian government is committed to supporting the bank, should this become necessary. Specifically, Moody's view is based on (i) the bank's full ownership by the government; (ii) an explicit government guarantee on all the bank's liabilities (under the amended Slovene Export and Development Bank Act); and (iii) the bank's strong policy role in extending liquidity to Slovenian commercial banks and targeted sectors in the economy.

-- FACTOR BANKA (UNRATED)

In downgrading Factor banka's government-guaranteed debt issue by one notch to A1 with a negative outlook from Aa3, Moody's notes that the issue receives the same rating as the Slovenian government bond rating. This is because, under the Deed of Guarantee, the Republic of Slovenia unconditionally and irrevocably guarantees the 'due and punctual payment' of all sums due and payable by Factor banka as contractually required under the conditions of this debt instrument. This is the only instrument issued by Factor banka that Moody's rates.

-- RATING SENSITIVITIES

Moody's continues to note that the standalone credit profile of the rated Slovenian commercial banks remains weak. These concerns are reflected in the rating agency's assessment of the low standalone ratings of Slovenian banks, which have an average asset-weighted standalone rating of B1, one of the lowest in central and eastern Europe.

Further pressure on standalone ratings may result from an increased likelihood for the banks to realise further losses on their high corporate-sector exposures at a time when internal capital creation in the Slovenian banking system is one of the lowest recorded in recent years.

The sensitivity of the supported ratings will also be influenced by rating actions on the government rating, in line with the aforementioned systemic support considerations.

FULL LIST OF RATING ACTIONS

The following ratings were downgraded today:

..Issuer: Nova Ljubljanska banka d.d.

Long-term local- and foreign-currency deposit ratings to Ba1 from Baa3 with negative outlook

....Short-term local- and foreign-currency deposit ratings to Non-prime from Prime-3

.Subordinate debt ratings to Ba2 from Ba1, remains on review for downgrade

.Government-guaranteed senior unsecured bond/debenture ratings to A1 from Aa3 with negative outlook

..Issuer: Nova Kreditna banka Maribor

Long-term local- and foreign-currency deposit ratings to Ba1 from Baa3 with negative outlook

....Short-term local- and foreign-currency deposit ratings to Non-Prime from Prime-3

..Issuer: Abanka Vipa d.d.

....Banking financial strength rating (BFSR) to E+ from D- with stable outlook

.The BFSR now maps to B1 (negative) on the long-term scale, from D- mapping to Ba3 previously

.Long-term local- and foreign-currency deposit ratings to Ba2 from Baa3 with negative outlook

....Short-term local- and foreign-currency deposit ratings to Non-Prime from Prime-3

.Preferred stock non-cumulative rating to Caa1 from B2 with negative outlook

.Government-guaranteed senior unsecured bond/debenture ratings to A1 from Aa3 with negative outlook

..Issuer: SID banka, d.d., Ljubljana

....Issuer rating, to A1 from Aa3 with negative outlook

....Senior unsecured regular bond/debenture ratings to A1 from Aa3 with negative outlook

..Issuer: Factor Banka

....Government-guaranteed senior unsecured ratings to A1 from Aa3 with negative outlook

The following ratings remain on review for downgrade pending the reassessment of government support assumptions in European bank subordinated debt (see earlier announcement entitled: "Moody's reviews European banks' subordinated, junior and Tier 3 debt for downgrade", published on 29 November 2011) .

..Issuer: Nova Ljubljanska banka d.d.

.Junior subordinate debt rating of B1(hyb)

..Issuer: Nova Kreditna banka Maribor

.Junior subordinate debt ratings of Ba3(hyb)

.Backed junior subordinate ratings of Ba3(hyb)

The following ratings were not affected:

..Issuer: Nova Ljubljanska banka d.d.

.... BFSR of E+ on stable outlook (mapping to B1 on the long-term scale)

..Issuer: Nova Kreditna banka Maribor

....BFSR of D- on negative outlook (mapping to Ba3 on the long-term scale)

METHODOLOGIES USED

The methodologies used in rating Nova Ljubljanska Banka (NLB), Nova Kreditna banka Maribor (NKBM) and Abanka Vipa (Abanka) were Banking Financial Strength Ratings: Global Methodology, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009.

Other factors used in these ratings are described in Frequently Asked Questions: Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The methodologies used in rating SID Banka were Revised Methodology for Government Related Non-Bank Financial Institutions published in August 2006, and Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

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

Information sources used to prepare each of the ratings are the following: parties involved in the ratings and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

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Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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.

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.

Irakli Pipia
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
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 downgrades ratings of four Slovenian banks, negative outlook
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