London, 08 June 2009 -- Moody's Investors Service today placed the ratings of six Baltic banks
on review for possible downgrade. The affected entities are Baltic
International Bank (Latvia), BIGBANK (Estonia), Mortgage and
Land Bank of Latvia (Latvia), Norvik Banka (Latvia), Siauliu
Bankas (Lithuania) and Trasta Komercbanka (Latvia).
Moody's also notes that all the ratings of Swedbank AS (Estonia)
and the long term debt and deposit ratings of Parex Bank remain on review
for possible downgrade, the review having been initiated on 27 April
2009 for Swedbank AS (Estonia) and 5 December 2008 and 11 May 2009 for
Parex Bank . The full list of rating actions can be found below.
The review of the banks' ratings will focus on Moody's expectation
of credit losses following the deterioration of the Baltic operating environment
and its potential impact on the banks' financial fundamentals and overall
creditworthiness. Although the Baltic banks' capitalisation levels
still appear to be adequate, Moody's believes that, with the
three economies in deep recession, the likelihood of corporate defaults
is rising in those countries and that this could lead to increased losses
on the banks' corporate loan portfolios.
Moreover, delinquencies in the banks' retail portfolios are also
expected to rise, reflecting higher unemployment and lower income
levels and a likely further decline in house prices. These losses
are expected to weaken the capital positions of most Baltic banks over
the next two years. Moody's says that it has been incorporating
expected losses on bank loan portfolios into its ratings for some time.
However, the Moody's expectation regarding the probability
of losses has increased because of the continuing deterioration of the
Baltic operating environment.
Moody's notes that there has been some speculation that the Bank
of Latvia may be forced to devalue the lat. Although the rating
agency does not necessarily believe that this is the most likely scenario
given the severe consequences and questionable positive effects stemming
from a devaluation, its review will address the impact of such a
devaluation on the banks' financial fundamentals and will also gauge
the possible implications for neighbouring Baltic banking systems.
Overall, the key factor in these rating actions is Moody's concern
that the banks' capitalisation levels and/or business franchises
will come under pressure in light of the ongoing recession in the Baltic
region.
REVIEW OF BFSRS AND DEBT AND DEPOSIT RATINGS
Those banks with capitalisation levels (Tier 1 and tangible common equity
ratios) that Moody's believes could be significantly adversely affected
as a result of high expected losses on their risk assets, primarily
stemming from high exposures to the real estate sector or unsecured consumer
finance, are likely to receive the biggest downgrades to their bank
financial strength ratings (BFSRs). Moody's expects the possible
downgrades of the senior debt and deposit ratings to be limited in most
cases to one notch. However, in case of BIGBANK which is
specialised in consumer finance, Moody's cautions that the downgrade
of the deposit rating could be of several notches. This reflects
the bank's high risk profile and recent rapid increase in problem loans.
Commenting on Mortgage and Land Bank of Latvia, Moody's notes that
the bank's foreign currency deposit rating currently receives a three-notch
uplift from its baseline credit assessment of Ba3 which reflects very
high probability of systemic support given the 100% ownership by
the government of Latvia. A possible multi-notch downgrade
of the BFSR would lead to a downgrade of the bank's foreign currency deposit
rating given the current support level.
Moody's BFSR methodology is unchanged, although the weight attached
to certain rating considerations, particularly capital and future
earnings prospects, has been increased to better reflect the impact
of the current crisis. The refinements to Moody's approach to rating
banks in this environment are discussed in two Special Comments entitled
"Calibrating Bank Ratings in the Context of the Global Financial Crisis",
published in February and "Moody's Approach to Estimating Bank Credit
Losses and their Impact on BFSRs", published in May.
Moody's expects to conclude its review of these banks within a month,
although for some entities the review process could be shorter.
RATING ACTIONS IN SUMMARY
The detailed rating actions are listed below (in alphabetical order).
Baltic International Bank
- B2 long-term local and foreign currency deposit rating
placed on review for downgrade
- E+ BFSR and Not Prime short-term rating affirmed
BIGBANK
- B1 long-term local and foreign currency deposit rating
and E+ BFSR placed on review for downgrade
- Not Prime short-term rating affirmed
Mortgage and Land Bank of Latvia
- D- BFSR and Baa3 long-term foreign currency deposit
rating and Prime-3 short-term rating placed on review for
downgrade
Norvik Banka
- Ba3 long-term local and foreign currency deposit rating
and D- BFSR placed on review for downgrade
- Not Prime short-term rating affirmed
Siauliu Bankas.
- Ba2 long-term local and foreign currency deposit rating
and D BFSR placed on review for downgrade
- Not Prime short-term rating affirmed
Trasta Komercbanka
- B2 long-term local currency deposit rating placed on review
for downgrade
- E+ BFSR and Not Prime short-term rating affirmed
PREVIOUS RATING ACTIONS AND METHODOLOGIES
Moody's last rating action on Baltic International Bank was on 12 December
2008 when it downgraded Baltic International Bank's rating to B2,
with a negative outlook.
Moody's last rating action on BIGBANK was on 3 September 2008 when it
changed the outlook on BIGBANK's B1 rating to negative.
Moody's last rating action on Mortgage and Land Bank of Latvia was on
23 April 2009 when it downgraded Mortgage and Land Bank of Latvia's
rating to Baa3/P-3, with a negative outlook.
Moody's last rating action on Norvik Banka was on 13 November 2008 when
it changed the outlook on Norvik Banka's Ba3/D- ratings to
negative.
Moody's last rating action on Siauliu Bankas was on 31 October 2008 when
it changed the outlook on Siauliu Bankas's Ba2/D ratings to negative.
Moody's last rating action on Trasta Komercbanka was on 12 December 2008
when it changed the outlook on Trasta Komercbanka's B2 rating to
negative.
The principal methodologies used in rating the banks were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies sub-directory. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Credit Policy & Methodologies directory.
Baltic International Bank is headquartered in Riga, Latvia,
and reported consolidated total assets of LVL0.167 billion (EUR0.24
billion) at the end of December 2008.
BIGBANK is headquartered in Tallinn, Estonia, and reported
consolidated total assets of EEK2.9 billion (EUR0.18 billion)
at the end of December 2008.
Mortgage and Land Bank of Latvia is headquartered in Riga, Latvia,
and reported total assets of LVL969 million (EUR1.4 billion) at
the end of December 2008.
Norvik Banka is headquartered in Riga, Latvia, and reported
total assets of LVL506 million (EUR0.7 billion) at the end of December
2008.
Siauliu Bankas is headquartered in Siauliu, Lithuania, and
reported total assets of LTL2.1 billion (EUR0.6 billion)
at the end of December 2008.
Trasta Komercbanka is headquartered in Riga, Latvia, and reported
consolidated total assets of LVL0.28 billion (EUR0.4 billion)
at the end of December 2008.
London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Kimmo Rama
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews six Baltic banks for possible downgrade
