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Announcement:

Moody's places the ratings of three Slovenian banks on review for possible downgrade

27 Jan 2011

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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Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's places the ratings of three Slovenian banks on review for possible downgrade
No Related Data.
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