Review prompted by continued weakness in Slovenian corporate sector
Limassol, January 27, 2011 -- Moody's Investors Service today placed the deposit ratings and bank
financial strength ratings (BFSRs) of the following three Slovenian banks
on review for possible downgrade:
- Nova Ljubljanska Banka (NLB): A3 long-term deposit
rating and D+ BFSR (which maps to a baseline credit assessment (BCA)
of Ba1)
- Nova Kreditna Banka Maribor (NKBM): Baa1 long-term
deposit rating and D BFSR (mapping onto a BCA of Ba2)
- Abanka Vipa (Abanka): Baa1 long-term deposit rating
and D+ BFSR (which maps onto a BCA of Ba1).
RATINGS RATIONALE
Moody's says that the decision to place the banks' ratings
on review for possible downgrade is prompted by the ongoing weakness of
the Slovenian corporate sector, which in turn will likely cause
further, material deterioration in the banks' asset quality
metrics. This trend of weakening asset quality began in 2008 and
has already put significant pressure on banks' profitability and
capital resources. This previously led Moody's to downgrade
Slovenian banks in October 2009 and again in September 2010.
Moody's expectations for continuing significant asset-quality
deterioration are partly based on the recent defaults of three major Slovenian
corporate borrowers from within the construction and investment holding
company sectors. Both sectors are particularly exposed to the country's
weak economic environment , given high levels of leverage,
poor cash flows and depressed asset prices. The pace of asset quality
deterioration in Slovenia has exceeded that of most neighbouring advanced
economies, driven partly by rapid increases in corporate borrowing
in the years preceding the global financial crisis. The risk of
loan losses is exacerbated by Slovenian banks' high corporate loan
concentrations.
Over the course of the review period, which is expected to last
up to three months, Moody's will assess in more detail the
extent of further asset quality deterioration at the three banks and the
impact that this will have on profitability and capital. It will
also assess the sufficiency and timeliness of the banks' capital-raising
plans. If the analysis concludes that there is a high risk of a
significant deterioration in the banks' financial position going
forward, it is likely that their ratings will be downgraded,
possibly by more than one notch.
RATING ACTIONS IN DETAIL
NOVA LJUBLJANSKA BANKA
Moody's has placed NLB's A3 long-term deposit ratings
and its BFSR to D+, mapping to a baseline credit assessment
(BCA) of Ba1, on review for possible downgrade.
NLB reported a Tier I ratio of 7.0% at the end of June 2010
and Moody's estimated its gross non-performing loans (NPLs
-- defined as loans classified D and E and all other loans past due
more than 90 days) to accounted for 11.2% of gross loans
to non-banking customers, with provision coverage of about
65%. The likelihood of further significant asset quality
deterioration and provisioning and the possibility of material losses
for the full year 2010 are expected to put additional pressure on capitalisation.
During the review period, Moody's will assess the extent of
additional asset quality deterioration and of provisioning needs.
It will also assess the extent to which the bank's planned EUR250
million capital increase, set to take place by March 2011,
is enough to materially improve capitalisation, given continued
heavy provisioning needs. As the bank's largest shareholder,
the Slovenian government has committed to participating in the capital
issue.
The following debt was also put on review for possible downgrade:
- The EUR190.0 million subordinated loan rated Baa1
- The EUR100.0 million perpetual subordinated floating-rate
notes rated Ba1
NOVA KREDITNA BANKA MARIBOR (NKBM)
Moody's has placed the NKBM's Baa1 long-term deposit
ratings and its D BFSR on review for possible downgrade.
NKBM posted a Tier I ratio of 8.2% at the end of June 2010
and Moody's estimated its gross NPLs (defined as loans classified
D and E and all other loans past due more than 90 days) to be 14.4%
of gross loans to non-banking customers, with provision coverage
of about 50%. Like its peers, the bank remains vulnerable
to further asset quality deterioration, given the flow of large
corporate defaults since June 2010.
During the review period Moody's will assess the extent of further
asset quality deterioration and of provisioning needs. Moody's
will balance these negative pressures against the benefits of a planned
capital increase during 2011 of about EUR100 million. As the majority
shareholder, the Slovenian government is likely to take part in
the capital issue.
The following debt was also was also placed on review for possible downgrade:
- The EUR100.0 million 7.02% subordinated
loan participation notes rated Ba2
- The EUR50.0 million subordinated floating-rate
Eurobonds were rated Ba2
ABANKA VIPA (ABANKA)
Moody's has placed Abanka's Baa1 long-term deposit
rating and its D+ BFSR on review for possible downgrade.
At the end of June 2010 Abanka posted a Tier I capital ratio of 10.3%
and Moody's estimated its gross NPLs (defined as loans classified
D and E and all other loans past due more than 90 days) to be 5.4%
of gross loans to non-banking customers, with provisioning
coverage of about 100%. Significant corporate loan concentrations
mean that the bank remains vulnerable to large corporate insolvencies.
During the review period, Moody's will review the extent of
further asset quality deterioration and the impact that this may have
provisioning needs, profitability and capitalisation.
The following debt of Abanka was also placed on review for possible downgrade:
- EUR120.0 million preferred stock loan participation rated
Ba3
PREVIOUS RATING ACTIONS AND METHODOLOGIES
Moody's previous rating action on Nova Ljubljanska Banka was implemented
on 28 September 2010, when the bank's ratings were downgraded,
and retained their negative outlook.
Moody's previous rating action on Nova Kreditna Banka Maribor was
implemented on 28 September 2010, when the bank's ratings
were downgraded and retained their negative outlook.
Moody's previous rating action on Abanka Vipa was implemented on
28 September 2010, when the bank's ratings were downgraded
and retained their negative outlook.
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, and "Moody's Guidelines
for Rating Bank Hybrid Securities and Subordinated Debt" published in
November 2009, and "Frequently Asked Questions: Moody's Guidelines
for Rating Bank Hybrid Securities and Subordinated Debt" published in
November 2009.
Headquartered in Ljubljana, Slovenia, Nova Ljubljanska Banka
reported total consolidated assets of EUR19.58 billion as of 30
June 2010.
Headquartered in Maribor, Slovenia, Nova Kreditna Banka Maribor
reported total consolidated assets of EUR5.92 billion as of 30
June 2010.
Headquartered in Ljubljana, Slovenia, Abanka Vipa reported
total consolidated assets of EUR4.64 billion as of 30 June 2010.
Limassol
George Chrysaphinis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
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London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's Investors Service Cyprus Ltd.
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319 28th October Avenue
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Moody's places the ratings of three Slovenian banks on review for possible downgrade