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Rating Action:

Moody's reviews ratings of 2 Slovenian banks for downgrade; affirms rating of 1 bank

03 Jun 2010

Rated subsidiary and hybrid debt also placed on review for downgrade

Limassol, June 03, 2010 -- Moody's Investors Service has placed the following fundamental ratings of Nova Ljubljanska Banka (NLB), NLB InterFinanz (NLB's Zurich-based subsidiary) and Nova Kreditna Banka Maribor (NKBM) on review for possible downgrade:

- NLB's A1/Prime-1 deposit ratings and C- bank financial strength rating (BFSR)

- NLB InterFinanz's Baa2 issuer rating

- NKBM's A2/Prime-1 deposit ratings and D+ BFSR

At the same time, the rating agency affirmed the A3/Prime-2 deposit ratings and D+ BFSR of Abanka Vipa (Abanka) with a negative outlook.

The full list of rating actions and their specific rationale can be found below.

Moody's review is driven by the worse than expected asset quality deterioration of NLB and NKBM in H2 2009 and continuing uncertainty about the strength of the economic recovery in Slovenia and the neighbouring markets in which the banks operate. Moody's notes that non-performing loans (NPLs) increased in H2 2009 at more than double the rate of H1 2009, exceeding base case expectations, as elaborated in the Special Comment entitled "Moody's Approach to Estimating Slovenian Banks' Credit Losses", published in October 2009. Although asset quality deterioration appears to have slowed down in Q1 2010, the possibility of further NPL accretions remains.

Moody's says that although NLB and NKBM currently maintain adequate capitalisation and provisioning coverage, possible further asset quality deterioration over the next few months could drive these metrics down to levels consistent with lower rating categories. Moody's believes that further pressure on capital could overwhelm recent positive developments in underlying profitability at the banks, reflected in stronger interest margins, and notes that franchise and funding challenges were captured by the October 2009 downgrades of these banks. During the review period, Moody's will make a more precise assessment of the resilience of the banks' capital position within the context of continuing asset quality pressures.

Moody's notes that these concerns apply equally to Abanka, but that the affirmation of its ratings reflects better asset quality resilience in 2009 and stronger capital and provisioning levels.

Moody's further notes the supportive attitude of the Slovenian government to the banking sector, reflected by direct and indirect liquidity support. This includes government guarantees for the issue of medium-term debt in international markets that was successfully accessed by both NLB (EUR1.5 billion in July 2009) and Abanka (EUR500 million in September 2009). Moody's believes that such support will continue to be made available for as long as necessary, and could extend to capital support, if required. Moody's assesses the likelihood of systemic support as high -- reflected in Slovenian banks' deposit ratings that incorporate four notches of uplift for NLB and NKBM, and three notches of uplift for Abanka.

RATING ACTIONS IN DETAIL

Nova Ljubljanska Banka

NLB's C- BFSR -- mapping to a Baseline Credit Assessment (BCA) of Baa2 -- has been placed on review for possible downgrade. The review was driven by the accelerated asset quality deterioration in H2 2009 (NPL accretion of 472 basis points compared to 155 basis points in H1 2009 -- according to Moody's calculations) and the risk of further material NPL accretion over the next few months. The decision to put the rating on review was taken despite the more favourable pre-provision earnings outlook for the bank in 2010.

Although current capitalisation and provisioning coverage are adequate, further significant asset quality deterioration over the next few months, within the context of continuing weakness in the Slovenian economy, could drive these metrics down to levels consistent with lower rating categories.

Moody's says that the bank's A1/Prime-1 deposit ratings are partly driven by its standalone financial strength (represented by the C- BFSR). A possible downgrade of the BFSR could therefore lead to a downgrade in the A1/Prime-1 deposit ratings, which have also been placed on review for possible downgrade.

The following debt of NLB has also been place on review for possible downgrade:

- The A2 rating on the EUR190.0 million subordinated loan

- The Baa2 rating on the EUR100.0 million perpetual subordinated floating rate notes

NLB InterFinanz

NLB InterFinanz's Baa2 issuer rating has been placed on review for possible downgrade. The company's issuer rating is based on an assessment of the company's stand-alone financial strength, but also incorporates some uplift due to parental support, from NLB.

During the review, Moody's will assess both the resilience of the company's intrinsic financial strength to deteriorating asset quality, and the changes to the level of parental support (represented by NLB's BFSR, now on review for possible downgrade). Moody's notes that like other parts of NLB's business, NLB InterFinanz's asset quality deteriorated sharply during 2009, putting capital and provision reserves under pressure.

Nova Kreditna Banka Maribor (NKBM)

NKBM's D+ BFSR (mapping onto a BCA of Baa3) has been placed on review for possible downgrade. The rating action was driven by the accelerated asset quality deterioration in H2 2009 (NPL accretion of 325 basis points compared to 152 basis points in H1 2009 -- according to Moody's calculations) and the risk of further material NPL accretion over the next few months. The decision to put the rating on review was taken despite the more favourable pre-provision earnings outlook for the bank in 2010.

Although current capitalisation and provisioning coverage are adequate, further significant asset quality deterioration over the next few months, within the context of continuing weakness in the Slovenian economy, could drive these metrics down to levels consistent with lower rating categories.

The following debt of NKBM has also been placed on review for possible downgrade:

- The A3 rating on the EUR50.0 million subordinated floating rate notes

- The Baa3 rating on the EUR100.0 million 7.02% junior subordinated loan participation notes

- The Baa3 rating on the EUR50.0 million junior subordinated floating rate Eurobonds

Abanka Vipa (Abanka)

Abanka's A3/Prime-2 deposit ratings and D+ BFSR have been affirmed with a negative outlook. At their current levels, the ratings adequately capture the impact of further asset quality deterioration on capital and of reduced financial flexibility.

The maintenance of a negative outlook on Abanka's ratings, signals that the bank's position within the D+ BFSR category is vulnerable to worse-than-anticipated economic developments in Slovenia.

The following debt of Abanka was also affirmed at Ba2 with a negative outlook:

- EUR120.0 million preferred stock loan participation notes

PREVIOUS RATING ACTIONS AND METHODOLOGIES

Moody's previous rating action on Nova Ljubljanska Banka was on 15 April 2010 when the bank's hybrid debt ratings were downgraded.

Moody's previous rating action on NLB InterFinanz was on 20 October 2009 when its issuer rating was downgraded to Baa2.

Moody's previous rating action on Nova Kreditna Banka Maribor was on 15 April 2010 when the bank's hybrid debt ratings were downgraded.

Moody's previous rating action on Abanka Vipa was on 15 April 2010 when the bank's hybrid debt ratings were downgraded.

Headquartered in Ljubljana, Slovenia, Nova Ljubljanska Banka reported total consolidated assets of EUR19.61 billion as of 30 June 2009.

Headquartered in Zurich, Switzerland, NLB InterFinanz reported total consolidated assets of CHF781.76 million (EUR525.6 million) as of 30 June 2009.

Headquartered in Maribor, Slovenia, Nova Kreditna Banka Maribor reported total consolidated assets of EUR5.79 billion as of 31 December 2009.

Headquartered in Ljubljana, Slovenia, Abanka Vipa reported total consolidated assets of EUR4.56 billion as of 31 December 2009.

The principal methodologies used in rating these banks were Moody's "Bank Financial Strength Ratings: Global Methodology" (February 2007) and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" (March 2007), and 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.

The principal methodology used in rating these banks' hybrid securities was "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", 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 securities can also be found in the Rating Methodologies sub-directory on Moody's website.

Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Limassol
George Chrysaphinis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews ratings of 2 Slovenian banks for downgrade; affirms rating of 1 bank
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