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Rating Action:

Moody's downgrades three Slovenian banks; ratings remain on review for further downgrade

25 Apr 2012

London, 25 April 2012 -- Moody's Investors Service has today downgraded by one notch the long-term deposit ratings of three Slovenian banks. Concurrently, Moody's downgraded one bank's standalone bank financial strength rating (BFSR) and remapped the other two banks' standalone credit strength within the relevant BFSR category. The downgrades reflect the sharp asset-quality deterioration in the banks' loan portfolios and high provisioning needs that have eroded their capital buffers and loss-absorption capacity:

(i) Nova Ljubljanska banka (NLB): Deposit ratings downgraded to Ba2 from Ba1; E+ standalone BFSR, remapped to b2 from b1 on the long-term scale.

(ii) Nova Kreditna banka Maribor (NKBM): Deposit ratings downgraded to Ba2 from Ba1; standalone BFSR downgraded to E+/b1 from D/ba3.

(iii) Abanka Vipa (Abanka): Deposit ratings downgraded to Ba3 from Ba2; E+ standalone BFSR, remapped to b2 from b1 on the long-term scale.

Moody's has also placed the ratings of these banks on review for further downgrade to assess (i) the implementation of the banks' capital raising plans; (ii) the degree to which the banks can successfully stabilise the formation of new problem loans; and (iii) the government's ability and willingness to provide timely and sufficient support to these banks, in case of need.

As part as the wider review of European bank subordinated debt, Moody's has removed systemic support rating uplift from the subordinated debt ratings of NLB and NKBM and repositioned junior subordinated debt ratings relative to subordinated debt. This is to reflect the decreased probability of government support for holders of subordinated debt issued by financial institutions in Slovenia. These subordinated ratings were placed on review in November 2011 in the context of reassessing systemic support assumptions for a number of European banks (for derails see press release "Moody's reviews European banks' subordinated, junior and Tier 3 debt for downgrade" November, 2011).

A full list of affected bank ratings is provided at the end of this press release.

RATINGS RATIONALE

-- DOWNGRADES DRIVEN BY EROSION OF CAPITAL BUFFERS

The downgrades reflect the sharp deterioration in asset quality incurred by all three banks, leading to large losses that undermine their future loss-absorption capacity.

Due to the ongoing difficulties in the Slovenian operating environment, the aggregate level of non-performing loans (NPLs) in the portfolios of the banks rose sharply, exceeding 17% in 2011 from 14% in 2010. The un-provisioned portion of NPLs has increased to 54.4% as of end-2011 from 51.5% a year ago, exerting pressure on their capitalisation levels.

In addition, losses announced by all three banks at end-2011 reduced their Tier 1 capital base by 24% (as reported in end-2010 and excluding new capital injections during 2011). In Moody's view, the banks' capital bases are very weak and insufficient to absorb any sizeable losses in 2012.

In terms of funding profiles, Moody's notes that the government-guaranteed funding facilities -- which supported NLB and Abanka's wholesale funding profiles -- will mature in H2 2012 and are unlikely to be renewed. Although these two banks are facing sizeable repayment pressures during this year, they have accumulated sufficient liquid resources to meet this challenge and extend the refinancing risk to 2014-15.

The lowering of the banks' standalone credit strength assessments prompted the downgrade of long-term deposit ratings. The current rating uplift from our assessment of systemic support from the government remains unchanged at this stage.

-- RATIONALE FOR THE FURTHER REVIEW

Due to the banks' asset-quality challenges, recapitalisation needs and funding constraints, Moody's expects that the three banks are likely to further deleverage and contract their operations. This will weaken their respective franchises and revenue potential as the operating conditions are unlikely to improve in 2012. As such, all three banks require timely Tier 1 capital injections, albeit to different degrees, in order to continue their lending operations and mitigate losses expected from future provisioning needs. Moody's also notes that the rated banks and Slovenian authorities recognise the necessity of capital injections and are at the preparatory stages of these initiatives.

FACTORS TO BE CONSIDERED DURING THE REVIEW

The review for downgrade of the standalone BFSRs of these banks will focus on three principal issues:

1. The feasibility of capital raising plans and sufficiency of these amounts to counter future losses;

2. The banks' ability to reverse deteriorating asset-quality trends and stabilise provisioning needs; and

3. The resilience of the banks' customer deposit bases and capacity to alleviate the pressure on their franchise caused by deleveraging.

Moody's review will focus on these factors bank-by-bank. If capitalisation plans do not materialise or the proposed amounts fail to address the loss expectations the conclusion of the reviews might result in downgrades of more than one notch in the banks' standalone credit strength. In this respect, post-provisioning profitability trends in H1 2012 will be an important rating driver.

The review of the supported deposit ratings will focus on a re-evaluation of the existing notching uplift from our systemic support assumptions. Currently, Moody's factors in a relatively high 2-3 notches of uplift, which is based on the majority direct and indirect government ownership of these banks and past precedents of governmental support to the banking system. However, Moody's also notes that the Slovenian government may face resistance to use additional taxpayers' money in recapitalising banks that have become increasingly loss-making. Therefore, the review of the notching uplift will focus on the assessment of recent developments that may signal potential shifts in the government's willingness and capability to provide on-going and timely assistance to the banking system, in the context of further incurred losses.

NOVA LJUBLJANSKA BANKA (NLB)

NLB's E+ standalone BFSR was re-mapped to b2 from b1 on the long-term scale and placed on review for downgrade. The long-term bank deposit ratings were downgraded by one notch to Ba2 from Ba1 and remains on review for downgrade. Subordinated and junior subordinated debt ratings of NLB were downgraded to B3 (from Ba2) and Caa1 (from B1), respectively one and two notches below the bank's standalone credit strength of b2. The government-guaranteed senior unsecured debt was not affected and remains at A2 (negative outlook), in line with the sovereign debt rating of Slovenia.

WHAT CAN CHANGE RATINGS UP/DOWN

Moody's considers that the EUR239 million loss (24% of 2010 Tier 1 capital) that NLB posted in end-2011 -- which lowered the group's Tier 1 capital to 7.2% -- significantly undermined the bank's future loss-absorption capacity. Although Moody's takes into account that NLB benefited from a capital injection of EUR250 million in March 2011.

The review of the standalone BFSR will assess the feasibility of NLB's capital raising plans and whether the proposed amount is sufficient to absorb losses stemming from further asset-quality deterioration. The failure of these plans might result in a downgrade of more than one notch in the bank's standalone credit strength. This is because in Moody's view, NLB has depleted its capital resources to absorb any sizeable losses that might occur in 2012.

The long-term deposit ratings, which currently incorporate a relatively high three notches of rating uplift, were also placed on review for downgrade. The conclusion of the review of the long-term deposit ratings will be driven by (i) the results of the standalone BFSR review; and (ii) Moody's reassessment of systemic support assumptions in light of the willingness of the Slovenian government to continue to underwrite losses incurred by the largest bank in the country, balanced against the need provided by the bank's dominant market share (27%) and its importance to the Slovenian economy and payment system.

NOVA KREDITNA BANKA MARIBOR (NKBM)

NKBM's standalone BFSR was downgraded to E+ (mapping to b1 on the long-term scale) from D-. The b1 standalone credit strength remains on review for downgrade. The long-term deposit ratings were also downgraded to Ba2 from Ba1 and remain on review for downgrade. The backed junior and junior subordinated debt ratings were also lowered to B3 from Ba3, on review for downgrade, two notches below the bank's b1 standalone credit strength.

WHAT CAN CHANGE RATINGS UP/DOWN

Moody's notes that NKBM's capital and funding position is relatively stronger compared with those of its peers. However, in line with its peers, the losses of EUR81.1 million (22% of 2010 Tier 1 capital) incurred by end-2011 reduced the bank's Tier 1 capital ratio to 8.47%. This will require additional capital injections or deleveraging in the near-term.

The review of the standalone BFSR will focus on the bank's ability to sustain its franchise in a very difficult operating environment, and stabilise its asset quality without weakening its capital position and operating revenues. Moody's notes that NKBM's refinancing needs are relatively smaller compared with those of its peers, partly due to having no government-guaranteed liabilities maturing in 2012 and a better loan-to-deposit ratio compared with its peers.

As the second-largest bank, which is directly and indirectly government-owned, NKBM's long-term deposit ratings benefit from two notches of rating uplift, due to systemic support assumptions. The conclusion of the review on these long-term deposit ratings will be driven by (i) the results of the review of the standalone BFSR; and (ii) Moody's reassessment of the systemic support assumptions, in light of the willingness of the Slovenian government to provide timely and on-going support the second-largest bank in the country.

ABANKA VIPA

Abanka's E+ standalone BFSR was re-mapped one notch lower to b2 from b1 on the long-term scale and placed on review for downgrade. The long-term bank deposit ratings were also downgraded by one notch to Ba3 from Ba2 and remain on review. The preferred stock non-cumulative rating was downgraded to Caa2 from Caa1, and placed on review for downgrade. The government-guaranteed senior unsecured debt was not affected and remains at A2 (negative outlook), in line with the sovereign debt rating of Slovenia.

WHAT CAN CHANGE RATINGS UP/DOWN

Moody's notes that Abanka group incurred net losses of EUR110 million (28% of 2010 Tier 1 capital) by end-2011, which lowered its Tier 1 capital ratio to 7.6% from 10.2% and considerably eroded its future loss-absorption capability.

The review of the bank's standalone BFSR will focus on the feasibility and sufficiency of the capital-injection plans to absorb future losses and will take into account whether the bank's deleveraging efforts erode its franchise position and operating revenues.

The long-term deposit ratings, which currently incorporate a relatively high two notches of rating uplift, were also placed on review. This was influenced by (i) the review of the standalone rating; and (ii) Moody's reassessment of systemic support assumptions in light of the mounting losses of other larger Slovenian banks and the willingness of the Slovenian government to extend on-going and timely support to the third-largest bank in the country.

FULL LIST OF RATING ACTIONS

The following ratings were downgraded today:

..Issuer: Nova Ljubljanska banka d.d.

Banking financial strength rating of E+ on review for downgrade (mapping to b2 from b1, on the long-term scale)

Long-term local- and foreign-currency deposit ratings to Ba2 from Ba1, on review for downgrade

Subordinate debt ratings to B3 from Ba2, on review for downgrade

Junior subordinate debt rating to Caa1(hyb) from B1, on review for downgrade

..Issuer: Nova Kreditna banka Maribor

Banking financial strength rating of E+ (mapping to b1 on the long-term scale) from D-, on stable outlook

Long-term local- and foreign-currency deposit ratings to Ba2 from Ba1, on review for downgrade

Junior subordinate debt ratings to B3(hyb) from Ba3(hyb), on review for downgrade

Backed junior subordinate debt ratings to B3(hyb) from Ba3(hyb), on review for downgrade

..Issuer: Abanka Vipa d.d.

Banking financial strength rating of E+ on review for downgrade (mapping to b2 from b1, on the long-term scale)

Long-term local- and foreign-currency deposit ratings to Ba3 from Ba2, on review for downgrade

Preferred stock non-cumulative rating to Caa2(hyb) from Caa1(hyb), on review for downgrade

The following ratings were unaffected:

..Issuer: Nova Ljubljanska banka d.d.

Short-term local- and foreign-currency deposit ratings of Non-prime

Government-guaranteed senior unsecured bond/debenture ratings of A2 with negative outlook

..Issuer: Nova Kreditna banka Maribor

Short-term local- and foreign-currency deposit ratings of Non-prime

..Issuer: Abanka Vipa d.d.

Short-term local- and foreign-currency deposit ratings of Non-prime

Government-guaranteed senior unsecured bond/debenture ratings of A2 with negative outlook

The methodologies used in these ratings 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 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Other Factors used in these ratings are described in Special Comment Reassessment of Government Support Assumptions in European Bank Subordinated Debt published in November 2011.

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 ratings have been disclosed to the rated entities or their 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, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings 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 entities or their 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.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

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 J 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 three Slovenian banks; ratings remain on review for further downgrade
No Related Data.
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