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Rating Action:

Moody's reviews five Austrian financial institutions for downgrade

19 Nov 2009

Frankfurt, November 19, 2009 -- Moody's Investors Service today placed on review for possible downgrade the bank financial strength ratings (BFSRs) and long-term debt and deposit ratings of five Austrian banks. It also affirmed the BFSR and long-term debt ratings of one financial institution.

The rating actions on all of the below-mentioned entities were taken within the context of Moody's recalibration exercise on Austrian banks, which included a stress-testing of banks' profits and assets. The completion of the recalibration exercise did not result in rating actions on any other Austrian banks except for those already placed on review for possible downgrade.

The issuers affected by the rating actions are as follows (for a more detailed discussion of the individual rating actions, see later in this press release):

Ratings placed on review for possible downgrade:

- Hypo Tirol Bank AG: C BFSR, Aa1 long-term debt and deposit ratings, Aa2 subordinate rating;,

- Intermarket Bank AG: C BFSR, A2 long-term debt and deposit ratings and Prime-1 short-term rating;

- Raiffeisenlandesbank Niederoesterreich-Wien AG: C BFSR, Aa3 long-term debt and deposit ratings;

- Raiffeisenlandesbank Oberoesterreich AG: C BFSR, Aa3 long-term debt and deposit ratings;

- Vorarlberger Landes- und Hypothekenbank AG: C BFSR, Aa1 long-term debt and deposit ratings, Aa2 subordinate rating;

Except for Intermarket Bank AG, all Prime-1 short term ratings of the above-mentioned banks have been affirmed.

Ratings affirmed:

- BAWAG P.S.K.: D BFSR, Baa1 long-term debt and deposit ratings and Prime-2-short term rating.

The last rating action on BAWAG P.S.K. was on 13 June 2007 when Moody's upgraded the bank's BFSR to D from E+ and downgraded its long-term debt and deposit ratings to Baa1 from A3.

Today's rating actions were prompted by Moody's expectation that some Austrian banks will experience increasing deterioration in asset quality over the coming quarters. This is likely to lead to greater credit-related write-downs than previously anticipated in the ratings, exerting adverse pressure on profitability and capitalisation. Please refer to our Special Comment published today, entitled "Moody's Approach to Estimating Austrian Banks' Credit Losses", for further details.

The anticipated deterioration in banks' financial strengths reflects Moody's expectation that the Austrian banking system will remain under pressure in the short-to-medium term given the continuation of the worst economic downturn in decades as reflected by the negative outlook on the Austrian banking system (please refer to our announcement entitled "Moody's comments on the negative outlook of the Austrian banking system", published on 18 November 2009).

MoodysEconomy.com expects Austria's real GDP to contract by 3.7% in 2009, with growth to recover slightly at 0.8% next year. The unemployment rate is expected to peak at 8% in 2010. Adverse prospects for the labour market, coupled with Moody's expectation of the deterioration in the creditworthiness of banks' retail and corporate customers, are likely to result in increased defaults.

Moody's has already taken several individual rating actions since the start of this year to reflect its expectation of pressure on the intrinsic financial strength of some Austrian financial institutions in a deteriorating macro-economic environment.

Those rating actions in particular reflected the rating agency's concerns both with regard to the financial institutions' exposures to markets in Central and Eastern Europe and the Commonwealth of Independent States and with regard to their domestic banking operations. For the latter exposures, the early estimates of expected losses that were used have since been fine-tuned, as described in Moody's Special Comment (the appendices of this report provide a list of rating actions taken earlier in the financial crisis).

As a consequence of the rating actions earlier in 2009, the ratings of a number of the Austrian banks have not been affected by the refinement of Moody's methodology. However, the completion of Moody's recalibration exercise on Austrian assets resulted in a few ratings being placed on review for possible downgrade in cases where its fine-tuned expectation of losses exceeded its earlier estimates. Moody's expects any downgrades of the senior debt and deposit ratings resulting from these rating reviews to be modest in most cases. It believes that banks in highly rated countries are likely to receive support depending on their level of systemic importance.

The banks with ratings placed on review for possible downgrade today have key credit drivers that are vulnerable to weaker performance in their BFSR categories, under the rating agency's anticipated (baseline) and worse-than-expected (stressed) scenarios. Among the key credit drivers, Moody's focuses in particular on current capital adequacy levels in relation to the banks' specific asset composition and their respective anticipated loss levels. The rating agency's expected macroeconomic scenario, as described in the Special Comment, is used to establish its baseline expectations for a bank's performance, while its worse-than-expected case helps to measure a bank's potential vulnerability in the event of a shift to a more adverse environment.

More specifically, the banks that are most likely to have their BFSRs downgraded are those with lower capital adequacy levels in relation to their exposures to asset classes with the highest expected losses, in accordance with Moody's published assumptions in the aforementioned Special Comment. These asset classes include, for example, commercial real estate, construction and consumer finance.

REVIEW OF BFSRs

Moody's BFSR reviews will focus on the extent to which factors such as more modest profitability, weaker asset quality and, in particular, lower capital adequacy leave banks more exposed to the ongoing economic downturn, particularly where this may also be combined with exposure to riskier sectors, such as commercial real estate, construction or consumer finance.

Moody's BFSR methodology remains unchanged, although the weight attached to certain rating considerations, particularly capital and future earnings prospects, has been increased to better reflect the effects of the current crisis. This refinement to Moody's approach to rating banks in the current environment is discussed in a Special Comment entitled "Calibrating Bank Ratings in the Context of the Global Financial Crisis", which was published in February 2009.

REVIEW OF SENIOR DEBT AND DEPOSIT RATINGS

Moody's explains that the magnitude of any downgrade of the senior debt and deposit ratings will be impacted not only by any downgrade of the respective banks' BFSRs but also by Moody's assessment of the probability of government support, which to a large extent depends on each bank's level of systemic importance.

In reviewing the deposit and senior debt ratings, Moody's will consider:

(i) the support currently available to the banks, as well as the probability of support once stability returns to the markets and the system;

(ii) the systemic importance of the rated institutions;

(iii) the banks' intrinsic financial strength; and

(iv) other sources of external support, in particular group support for the co-operative credit banks and parental support.

LIST OF RATING ACTIONS: REVIEWS FOR POSSIBLE DOWNGRADE

Hypo Tirol Bank AG

- C BSFR on review for possible downgrade

- Aa1 debt and deposit ratings on review for possible downgrade;

- Aa2 subordinate rating on review for possible downgrade;

The rating action on the BFSR is triggered by the outcome of Moody's stress-tests on Hypo Tirol Bank's assets and in particular by the potential losses in its corporate and SME portfolio combined with the bank's moderate profitability and comparatively high non-performing loan ratios. The bank's overall profile is considered to be comparatively weak at the current C BFSR level.

The review of the Aa1 long-term debt and deposit ratings reflects Moody's expectation that a downgrade of Hypo Tirol Bank's BFSR would also trigger a downgrade of these ratings.

The last rating action on Hypo Tirol Bank AG was on 20 April 2007 when Moody's affirmed the bank's Aa1 deposit ratings.

Intermarket Bank AG

- C BSFR on review for possible downgrade

- A2 debt and deposit ratings on review for possible downgrade

- Prime-1 short-term rating on review for possible downgrade;

The rating action is triggered by Moody's expectation that the current economic environment will have a negative impact on the credit quality of Intermarket Bank AG's factoring portfolios as a reflection of a deterioration of corporate and SME risk profiles.

The review of the A2 long-term debt and deposit ratings reflects Moody's expectation that a downgrade of Intermarket Bank AG's BFSR would also trigger a downgrade of these ratings.

The last rating action on Intermarket Bank AG was on 11 May 2007 when Moody's affirmed the bank's C BFSR and upgraded its debt and deposit ratings to A2 from A3.

Raiffeisenlandesbank Niederoesterreich-Wien AG

- C BSFR on review for possible downgrade

- Aa3 debt and deposit ratings on review for possible downgrade;

The rating action on the BFSR is triggered by the outcome of Moody's stress-tests on Raiffeisenlandesbank Niederoesterreich-Wien AG's assets and in particular by the potential losses in its commercial real estate and SME portfolios. The bank's moderate profitability leaves only a small room to buffer the expected losses. In addition, Moody's is concerned with regard to the bank's dependence on rather volatile income from its subsidiaries. The bank's overall profile is considered to be rather weak at the current C BFSR level.

The review of the Aa3 long-term debt and deposit ratings reflects Moody's expectation that a downgrade of Raiffeisenlandesbank Niederoesterreich-Wien AG's BFSR would also trigger a downgrade of these ratings.

The last rating action on Raiffeisenlandesbank Niederoesterreich-Wien AG was on 15 July 2008 when Moody's assigned Aa3/P-1 deposit ratings and a C BFSR to the bank.

Raiffeisenlandesbank Oberoesterreich AG

- C BSFR on review for possible downgrade

- Aa3 debt and deposit ratings on review for possible downgrade;

The rating action on the BFSR is triggered by the outcome of Moody's stress-tests on Raiffeisenlandesbank Oberoesterreich AG's assets and in particular by the potential losses in its commercial real estate and SME portfolios. The bank's moderate profitability leaves only a small room to buffer the expected losses. In addition, Moody's is concerned with regard to the bank's dependence on rather volatile income from its equity investments in industrial holdings. The bank's overall profile is considered to be rather weak at the current C BFSR level.

The review of the Aa3 long-term debt and deposit ratings reflects Moody's expectation that a downgrade of Raiffeisenlandesbank Oberoesterreich AG's BFSR would also trigger a downgrade of these ratings.

The last rating action on Raiffeisenlandesbank Oberoesterreich AG was on 20 April 2007 when Moody's upgraded the bank's debt and deposit ratings to Aa3 from A1.

Vorarlberger Landes- und Hypothekenbank AG

- C BSFR on review for possible downgrade

- Aa1 debt and deposit ratings on review for possible downgrade

- Aa2 subordinate rating on review for possible downgrade;

The rating action on the BFSR is triggered by the outcome of Moody's stress-tests on Vorarlberger Landes- und Hypothekenbank AG's assets and in particular by the potential losses in its commercial real estate portfolio combined with the bank's relatively high non-performing loan ratios. Moody's therefore expects higher provisioning levels over the next quarters whereas the bank's moderate profitability leaves only a small room to buffer those losses. The bank's overall profile is considered to be rather weak at the current C BFSR level.

The review of the Aa1 long-term debt and deposit ratings reflects Moody's expectation that a downgrade of Vorarlberger Landes- und Hypothekenbank AG's BFSR would also trigger a downgrade of these ratings.

The last rating action on Vorarlberger Landes- und Hypothekenbank AG was on 20 April 2007 when Moody's affirmed the bank's Aa1 debt and deposit ratings.

Except for Intermarket Bank AG, all short-term ratings were affirmed.

The ratings of other Austrian banks are unaffected by the completion of Moody's recalibration exercise.

(Please note that this press release does not deal with possible implications for the covered bond ratings of Austrian banks.)

MOODY'S METHODOLOGIES

The principal methodologies used in rating the issuers mentioned in this press release are "Moody's Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings", published in March 2007, and are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory on Moody's website.

BAWAG P.S.K. headquartered in Vienna, Austria, had total assets of EUR41 billion as of 30 June 2009.

Hypo Tirol Bank AG, headquartered in Innsbruck, had total assets of EUR12 billion as of 30 June 2009.

Intermarket Bank AG, headquartered in Vienna, Austria, had total assets of EUR255 million as of 31 December 2008.

Raiffeisenlandesbank Niederoesterreich-Wien AG, headquartered in Vienna, Austria, had total assets of EUR30 billion as of 30 June 2009.

Raiffeisenlandesbank Oberoesterreich AG, headquartered in Linz, Austria, had total assets of EUR34 billion as of 30 June 2009.

Vorarlberger Landes- und Hypothekenbank AG, headquartered in Bregenz, Austria, had total assets of EUR13 billion as of 31 December 2008.

Frankfurt
Dominique Nutolo
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Carola Schuler
Managing Director
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews five Austrian financial institutions for downgrade
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