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Rating Action:

Moody's takes actions on 3 subsidiaries of Erste Group Bank AG

06 Jun 2012

Actions follow the downgrade of the parent bank's ratings

Milan, June 06, 2012 -- Moody's Investors Service has taken the following actions on Erste Group Bank AG's (Erste Bank) subsidiaries:

- Downgraded by one notch the long-term deposit ratings of Ceska Sporitelna in Czech Republic to A2, the standalone BFSR to C- (mapping to a standalone credit assessment of baa1), with a negative outlook, and confirmed the short-term deposit ratings of Prime-1. The downgrade reflects Erste Bank's increasing financial challenges -- which may be transmitted to its subsidiary -- as indicated by the recent two-notch downgrade of Erste Bank (deposits A3, negative; BFSR D+/ BCA baa3, negative), combined with the weakening operating environment in Czech Republic.

- Downgraded the deposit ratings of Banca Comerciala Romana (BCR) in Romania to Ba1/Not-Prime (with a negative outlook), and the standalone BFSR to E+ (mapping to a standalone credit assessment of b1). The downgrade reflects the impact of the deterioration of the operating environment in Romania combined with the bank's rapidly weakening financial performance, counterbalanced by Moody's view of Erste's continuing commitment to the Romanian market.

- Confirmed the long-term deposit ratings of Erste Bank Hungary (EBH) at Ba3, with a negative outlook. The confirmation reflects the parent's continuing commitment to its Hungarian operations and Moody's view that the ratings are appropriately positioned to capture the highly adverse local market environment.

These actions follow Moody's recent decision to downgrade Erste Bank. For further details on the Erste Bank downgrade, please see http://www.moodys.com/research/Moodys-downgrades-Austrian-banks-ratings-carry-stable-or-negative-outlooks--PR_247329 published on 6 June 2012.

Today's actions on the three subsidiaries conclude the reviews initiated on 21 February 2012, when the ratings of these subsidiaries were placed on review for downgrade, following concerns deriving from the pressure facing the parent group Erste Bank, as well as from standalone considerations for the Czech and the Romanian subsidiaries with respect to their own markets.

A full list of affected ratings is provided at the end of this press release. For additional information on bank ratings, please refer to the webpage containing Moody's related announcements http://www.moodys.com/bankratings2012.

CESKA SPORITELNA (CZECH REPUBLIC)

RATINGS RATIONALE

Moody's says that the one-notch downgrade of Ceska Sporitelna's long-term deposit ratings to A2 and the standalone BFSR to C- (mapping to a standalone credit assessment of baa1) reflects: (i) the pressures that the bank faces, emanating from the weakening of Erste Bank's credit profile; and (ii) the more difficult operating environment in Czech Republic that we expect will constrain the bank's ability to generate stable earnings.

--- PRESSURES FROM WEAKENED GROUP PROFILE

Moody's recognises that Ceska Sporitelna is an important part of Erste Group Bank's overall franchise, contributing almost half of the Group's profits in 2011. However, pressure on the bank's performance stems from (i) the risk of overall group restrictions on the extent to which Ceska Sporitelna can increase its risk weighted assets; (ii) cost reductions at group level, which may lead to a decline in group support that has historically underpinned the bank's operating strength; and (iii) the risk of capital being up-streamed to the parent, directly affecting Ceska Sporitelna's capital cushion.

--- OPERATING ENVIRONMENT EXPECTED TO WEAKEN

The operating environment for Czech banks has weakened, illustrated by the slowdown in economic output and further downside risks related to weakening export demand from European trading partners. Moody's expects Czech GDP growth to decline to 0% in 2012 from 1.7% in 2011, and the European Commission forecasts unemployment to increase to 7.2% in 2012. Despite the bank's strong capital position -- with a 13.5% Tier 1 ratio as of March 2012 -- and its solid funding profile, Moody's expects that the economic slowdown will outweigh these mitigating factors. Specifically, Moody's expects Ceska Sporitelna's problem loans to remain under pressure from the level of 5.9% posted at the end of 2011.

Ceska Sporitelna's deposit ratings continue to benefit from two notches of uplift from systemic support, reflecting the very high probability of support from the Czech government, in case of need. The negative outlook on Ceska Sporitelna's deposit ratings reflects the possibility that pressures on the parent could lead to the bank becoming more weakly positioned in the C- BFSR category, resulting in a lowering of the mapping to baa2.

WHAT COULD MOVE THE RATINGS UP/DOWN

The negative outlook on Ceska Sporitelna's deposit ratings reflects Moody's expectation that upwards pressure on the bank's ratings is limited at this stage. Over time, the ratings could be stabilised if the bank strengthens its performance metrics and/or the parent's ratings stabilise.

Further downwards pressure on the standalone and deposit ratings could be exerted if the group's performance were to negatively affect the subsidiary.

BANCA COMERCIALA ROMANA (ROMANIA)

RATINGS RATIONALE

--- WEAKENING OPERATING ENVIRONMENT IN ROMANIA

Moody's says that the increasing challenges posed by the Romanian operating environment have reduced the creditworthiness of BCR, reflected in the downgrade of standalone BFSR to E+/b1, and its deposit ratings to Ba1/Not-Prime (with a negative outlook).

Given Romania's high dependence on external markets, particularly in terms of exports and private sector capital inflows, the increasing pressure from euro area countries is dragging on Romania's economic performance. In the last quarter of 2011 and in the first quarter of 2012 Romania experienced a mild GDP contraction quarter-on-quarter. Private consumption remains subdued, and unemployment is rising. Although economic growth should improve in the coming years, this will likely remain well below the 2008 pre-crisis levels (about 6% GDP growth per annum), thus making income convergence with core Europe more challenging, given the significant disparity in household income, at 64% below the EU27 average. The macroeconomic weaknesses affect banking sector performance with weak credit demand, lower revenues and asset-quality pressures.

In particular for Banca Comerciala Romana, the rapid escalation of non-performing loans (NPLs), which reached 22.4% of the total loan portfolio at the end of March 2012, is a function of the weakening operating environment. This NPLs trend reflects the bank's (i) large loan exposure to the weak small and medium enterprises and micro companies; and (ii) significant level of foreign-currency lending, equal to about 62% of the total loan portfolio, mainly Euro-denominated, which also represent a key credit risk in the current environment. Poor asset quality led to a relatively large loss in the first quarter of 2012 and will continue to exert pressure on profitability through 2013.

--- LARGEST FRANCHISE IN ROMANIA COMBINED WITH ASSUMPTIONS OF PARENTAL SUPPORT PROVIDES RATING UPLIFT

Banca Commerciala Romana is the largest bank in Romania, with market shares of around 20% in deposits and 22% on loans. Erste Bank has recently increased its stake in the bank to 92.3% and continues to provide significant funding support to its subsidiary, mostly to fund its sizeable foreign-currency portfolio. These considerations drive Moody's assumptions of parental and system support for the bank, thus resulting in a three-notch rating uplift from the current b1 standalone credit assessment.

The outlook on all the bank's ratings is negative and reflects the possibility that the pressures on profitability and capital, if sustained, could lead to the bank becoming more weakly positioned in the E+ BFSR category, resulting in a lowering of the mapping to b2.

WHAT COULD MOVE THE RATINGS UP/DOWN

Banca Comerciala Romana's ability to maintain its dominant position -- coupled with a return to a sustainable profitability and significant asset quality improvements -- could result in upwards pressure on the BFSR and the deposit ratings.

Further downward pressure on the standalone rating could be exerted if the bank became consistently loss-making. This would have a material impact on the sustainability of Banca Comerciala Romana's dominant franchise in Romania, and on its capitalisation level, which Moody's currently views as an important cushion. In addition, further deterioration in the economic conditions in Romania leading to an acceleration in asset quality deterioration of the bank might result in downwards pressure on the standalone credit strength and long-term deposit ratings, as well as a further downgrade of Erste Bank's ratings.

ERSTE BANK HUNGARY (HUNGARY)

RATINGS RATIONALE

--- PARENT REMAINS COMMITTED TO ITS HUNGARIAN OPERATIONS

Erste Bank Hungary's long-term deposit ratings were originally placed on review over concerns that the challenges facing the parent group could negatively impact its capacity and willingness to support its Hungarian subsidiary. However, the confirmation of EBH's long-term deposit ratings of Ba3, with a negative outlook, reflects Erste Bank's ongoing commitment to its Hungarian operations, due to the subsidiary's strategic fit and geographical proximity. The parent has provided ongoing capital and funding to Erste Bank Hungary, although the subsidiary is deleveraging because of the adverse operating environment. The parent recapitalised its subsidiary in 2011 following the large losses posted that year, and provided subordinated debt in the first quarter of 2012. Funding support continues to be significant, although it is decreasing in line with the bank's assets.

The confirmation of Erste Bank Hungary's long-term deposit ratings reflects the two-notch rating uplift that Moody's continues to incorporate into Erste Bank Hungary's ratings, due to the rating agency's assessment of moderate parental support assumptions for the bank.

WHAT COULD MOVE THE RATINGS UP/DOWN

Any upward movement on the ratings depend on material improvement in the European operating environment and a consequent easing of pressures on the bank and its parent. In the longer term, a potential upgrade of the BFSR could be driven by (i) an improvement in the bank's financial fundamentals, especially a significant increase in its Tier 1 capital ratio; (ii) an improvement in the structural mismatches on the balance sheet that stem from the significant level of foreign-currency loans in its retail portfolio; and (iii) a sustainable improvement in asset quality.

Downwards pressure on Erste Bank Hungary's deposit ratings might develop if the parent bank's willingness to provide support reduces. Similarly, in the current challenging operating environment, a further significant weakening of Erste Bank Hungary's financial fundamentals -- combined with pressure on its capitalisation -- may also exert downwards pressure on the ratings.

FULL LIST OF RATING ACTIONS

The following ratings were affected today:

..Issuer: Ceska Sportitelna a.s.

Long-term local and foreign-currency deposit ratings downgraded to A2 from A1, with negative outlook

Short-term local- and foreign-currency deposit ratings of Prime-1 confirmed

Bank financial strength rating downgraded to C- (mapping to baa1) from C (mapping to a3), with stable outlook

..Issuer: Banca Comerciala Romana S.A.

Long-term local-currency deposit rating downgraded to Ba1 from Baa2, with negative outlook

Long-term foreign-currency deposit rating downgraded to Ba1 from Baa3, with negative outlook

Short-term local-currency deposit rating downgraded to Not-Prime from Prime-2

Short-term foreign-currency deposit rating downgraded to Not-Prime from Prime-3

Bank financial strength rating downgraded to E+ (mapping to b1) from D (mapping to ba2), with stable outlook

..Issuer: Erste Bank Hungary

Long-term local and foreign-currency deposit ratings of Ba3 confirmed, with negative outlook

The following ratings were unaffected:

..Issuer: Erste Bank Hungary

Bank financial strength rating of E+, with stable outlook (mapping to b2)

Short-term local and foreign-currency deposit ratings of Not Prime

The principal methodologies used in these ratings was Bank Financial Strength Ratings: Global Methodology published in February 2007 and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

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

The ratings have been disclosed to the rated entities or their designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the ratings for Ceska Sporitelna, a.s. and Banca Comerciala Romana S.A are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Information sources used to prepare the ratings for Erste Bank Hungary Rt are the following: parties involved in the ratings, and public information.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

The below contact information is provided for information purposes only. Please see the issuer page on www.moodys.com for Moody's regulatory disclosure of the name of the lead analyst and the office that has issued the credit rating.

The relevant Releasing Office for each rating is identified under the Debt/Tranche List section on the Ratings tab of each issuer/entity page on moodys.com

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Simone Zampa
Vice President - Senior Analyst
Financial Institutions Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Yves?J?Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's takes actions on 3 subsidiaries of Erste Group Bank AG
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