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Rating Action:

Moody's places three Slovenian banks' ratings on review for upgrade

Global Credit Research - 03 May 2017

London, 03 May 2017 -- Moody's Investors Service has today placed on review for upgrade the three largest Slovenian banks, prompted by the rating agency's change of Slovenia's Macro Profile to "Moderate" from "Moderate-", as well as the continued improvement in the banks' credit fundamentals. The strengthening of the Macro Profile reflects Moody's assessment that the Slovenian banks' operating environment has benefited from a significant reduction in systemic risks underscored by the start of the privatisation process of the largest banks in 2016 as well as gradual improvements in the banks' risk management practices in the past few years. Moody's expects continued recovery in credit demand to support banks' lending growth and revenues, after several years of loan book contraction. For a detailed analysis of Slovenia's Macro Profile please see: "Slovenia Macro Profile: Moderate" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062994).

As a result of the change in the Macro Profile, the following banks' ratings were placed on review for upgrade:

- All long-term ratings and rating inputs of Nova Ljubljanska banka d.d. were placed on review for upgrade;

- All long-term ratings and rating inputs of Nova Kreditna banka Maribor d.d. were placed on review for upgrade;

- All long-term ratings and rating inputs of Abanka d.d. were placed on review for upgrade.

The Not-Prime short-term deposit ratings of banks captured by today's rating actions were unaffected.

During the review, Moody's will assess the impact of Slovenia's higher Macro Profile and the banks' improved financial fundamentals on these banks' individual credit profiles, which would likely lead to upgrades of the banks' long-term ratings by up to two to three notches. The rating agency strives to conclude the rating reviews within two months.

The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

(1) CHANGED MACRO PROFILE REFLECTS IMPROVING OPERATING ENVIRONEMENT IN SLOVENIA AND EXERTS UPWARDS PRESSURE ON RATINGS

The change of Slovenia's Macro Profile to "Moderate" from "Moderate-" will positively affect the rated Slovenian banks' baseline credit assessments (BCA) and as a result their long-term deposit ratings and Counterparty Risk Assessments (CRA). The Macro Profile constitutes an assessment of the macroeconomic environment in which a bank operates.

The change of the Macro Profile illustrates Moody's assessment of the improvement in Slovenian banks' operating environment, in particular a significant reduction in systemic risks in the banking sector. The privatisation process of the largest banks, started in 2016 coupled with gradual improvements in banks' risk management practices underscore reduced levels of risk to the sector after the 2013 banking crisis, which ultimately resulted in the insolvency of the largest banks and their subsequent nationalization and re-capitalisation by the Slovenian government.

The improving operating environment will benefit Slovenian banks' credit profiles by helping to further reduce the high level of problem loans and restore their recurring profitability. A gradual recovery in credit demand should support banks' lending growth and revenues after several years of loan book contraction.

Consequently, Moody's assessment of more favorable operating conditions for banks in Slovenia in combination with ongoing reductions of problem loans and further improved financial performance of the banks during 2016 will likely result in rating upgrades of up to two to three notches upon the completion of the ratings review.

2) BANK-SPECIFIC CONSIDERATIONS

Nova Ljubljanska banka d.d. (NLB)

The review for upgrade of NLB's Ba3 long-term deposit ratings and its Ba2(cr)/Not Prime(cr) CRA was driven by: (1) the upward pressure on the bank's b3 BCA and adjusted BCA; (2) maintaining the current two-notches rating uplift for deposit ratings from Moody's Advanced LGF analysis; and (3) unchanged moderate government support assumption for NLB, as Slovenia's largest bank, which provides one notch of rating uplift.

The review for upgrade of NLB's b3 BCA reflects the improvements in the bank's asset quality and profitability, as well as the maintaining of strong capital adequacy. In 2016 NLB reported a 21% year-on-year increase in net income, which translates to a return on assets (RoA) of 0.96%. The bank's reported problem loans ratio declined significantly to 15.0% as of year-end 2016, from 22.5% as of year-end 2015, owing mainly to the sale and write-off of some of the problem loans. Limited lending growth and moderate profitability will underpin NLB's good capital adequacy with its Tier 1 ratio at 17% as of year-end 2016. NLB is largely deposit-funded with a strong buffer of liquid assets that accounted for 41% of the bank's average total assets as of year-end 2016.

The strong upward pressure on NLB's standalone credit profile could result in an upgrade of up to two notches for the bank's BCA, long-term deposit ratings and CRA.

Nova Kreditna banka Maribor d.d. (NKBM)

The review for upgrade of NKBM's B2 long-term deposit ratings and its Ba3(cr)/Not Prime(cr) CRA was driven by: (1) the upward pressure on the bank's b3 BCA and adjusted BCA; (2) maintaining the current one-notch rating uplift for deposit ratings from Moody's Advanced LGF analysis; and (3) no rating uplift from government support.

The review for upgrade of NKBM's b3 BCA reflects the improved Moderate Macro Profile combined with improvements in asset quality and capital adequacy. The bank's problem loans ratio declined significantly to 28.2% as of year-end 2016 from 36.3% as of year-end 2015. While solvency risks from such a high level of problem loans are considerable, maintaining a good level of problem loans coverage with loan loss reserves at 70% and strong capital adequacy with a Tier 1 ratio of 24% as of year-end 2016 are important risk mitigants. NKBM is predominantly deposit-funded, with a gross loan-to-deposit ratio of 68% as of year-end 2016.

The strong upward pressure on NKBM's standalone credit profile could result in an upgrade of up to two or three notches for the bank's BCA, long-term deposit ratings and CRA.

Abanka d.d. (Abanka)

The review for upgrade of Abanka's Ba3 long-term deposit ratings and its Ba2(cr)/Not Prime(cr) CRA was driven by: (1) the upward pressure on the bank's b2 BCA and adjusted BCA; (2) maintaining the current two-notches rating uplift for deposit ratings from Moody's Advanced LGF analysis; and (3) no rating uplift from government support.

The review for upgrade of Abanka's b2 BCA reflects the improved Moderate Macro Profile combined with improvements in profitability and capital adequacy. As of year-end 2016 Abanka reported a net income of EUR77.5 million, up from EUR41.7 million as of year-end 2015, owing to stabilisation in revenues and reversal of loan loss provisions. Consequently, the bank's RoA rose to 2.1% as of year-end 2016 from 1.1% as of year-end 2015. Abanka's strong profitability further strengthened its capital with Tier 1 ratio increasing to 26.5% as of year-end 2016 from 23% as of year-end 2015. The bank's reported problem loans ratio was little changed in year-end 2016 at 15.9%, while the problem loans coverage with loan loss reserves declined to 76% from 89% as of year-end 2015.

The strong upward pressure on Abanka's standalone credit profile could result in an upgrade of up to two notches for the bank's BCA, long-term deposit ratings and CRA.

-- WHAT COULD MOVE THE RATINGS UP/DOWN

During the review, Moody's will assess the impact of Slovenia's higher Macro Profile and the banks' improved financial fundamentals on these banks' credit profiles, which would likely lead to upgrades of the banks' long-term ratings by up to two to three notches.

The improving operating environment as reflected in the stronger Macro Profile of Moderate for Slovenia will benefit banks' asset quality, profitability and capitalisation and is therefore considered a key driver for potential ratings upgrade.

Ratings downgrades are unlikely in the short-term given the banks' improving credit profiles. However, a deterioration in individual banks' standalone financial metrics may have negative rating implications in the medium-term.

A change in the bank's liability structure may change the uplift provided by Moody's Advanced LGF analysis and lead to a higher or lower notching from the banks' adjusted BCAs, thereby affecting deposit ratings.

LIST OF AFFECTED RATINGS

These ratings have been placed on Review for Upgrade:

Issuer: Nova Ljubljanska banka d.d.

.... LT Bank Deposits (Local & Foreign), currently Ba3, outlook changed to Rating under Review from Positive

.... Adjusted Baseline Credit Assessment, currently b3

.... Baseline Credit Assessment, currently b3

.... Counterparty Risk Assessment, currently Ba2(cr)

.... ST Counterparty Risk Assessment, currently Not Prime(cr)

Issuer: Nova Kreditna banka Maribor d.d.

.... LT Bank Deposits (Local & Foreign), currently B2, outlook changed to Rating under Review from Positive

.... Adjusted Baseline Credit Assessment, currently b3

.... Baseline Credit Assessment, currently b3

.... LT Counterparty Risk Assessment, currently Ba3(cr)

.... ST Counterparty Risk Assessment, currently Not Prime(cr)

Issuer: Abanka d.d.

.... LT Bank Deposits (Local & Foreign), currently Ba3, outlook changed to Rating under Review from Positive

.... Adjusted Baseline Credit Assessment, currently b2

.... Baseline Credit Assessment, currently b2

.... LT Counterparty Risk Assessment, currently Ba2(cr)

.... ST Counterparty Risk Assessment, currently Not Prime(cr)

Outlook Actions:

Issuer: Nova Ljubljanska banka d.d.

....Outlook changed to Rating Under Review from Positive

Issuer: Nova Kreditna banka Maribor d.d.

.... Outlook changed to Rating Under Review from Positive

Issuer: Abanka d.d.

....Outlook changed to Rating Under Review from Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Items color coded in purple in this from to list relate to unsolicited ratings for a rated entity which is non-participating.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Armen L. Dallakyan
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
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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