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Rating Action:

Moody's takes actions on five subsidiaries of Soci?t? G?n?rale in Central Europe and Russia

25 Jun 2012

Actions follow the downgrade of the parent bank's ratings

London, 25 June 2012 -- Moody's Investors Service has today taken rating actions on five subsidiaries of Société Générale (SocGen), domiciled in the Czech Republic, Romania and Russia -- namely Komercni Banka (Czech Republic), BRD - Groupe Société Générale (Romania) and three Russian entities: Rosbank, DeltaCredit Bank and Rusfinance Bank.

These rating actions follow the recent downgrade of SocGen's long-term debt and deposit ratings by one notch, to A2 from A1, and the lowering of SocGen's standalone financial strength by one notch to C-/baa2 from C-/baa1. The outlook on both the standalone financial strength and long-term debt and deposit ratings is stable. For further details on the SocGen downgrade, please refer to the press release "Moody's downgrades firms with global capital markets operations," published on 21 June 2012.

Moody's says that today's rating actions conclude the reviews Moody's initiated on 16 December 2011 for the Russian subsidiaries -- Rosbank, DeltaCredit Bank and Rusfinance Bank; on 21 February 2012 for Komercni Banka (Czech Republic); and on 16 December 2011 for BRD - Groupe Société Générale (Romania), with the scope of the review for BRD expanded on 1 June 2012.

The drivers of Moody's rating actions on the five subsidiaries vary and reflect a combination of different factors, including (i) the reduction in the financial capacity of SocGen as a support provider, as indicated by SocGen's recent rating downgrade; (ii) the rating agency's concerns that group level pressures may impact financial strength at the subsidiary level; and (iii) the impact of weakening domestic operating environments.

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

RATINGS RATIONALE--- KOMERCNI BANKA (CZECH REPUBLIC)

Today Moody's took the following rating actions on Komercni Banka:

- standalone bank financial strength rating (BFSR) downgraded to C-/baa1 from C/a3; the outlook on the BFSR is stable

- long-term local and foreign currency deposit ratings of A2, as well as the Prime-1 short-term local and foreign currency deposit ratings, confirmed; the outlook on the long-term deposit ratings is negative

Moody's says that the one-notch downgrade of Komercni Banka's standalone BFSR to C-/baa1, which compares to the SocGen's standalone BFSR of C-/baa2, reflects (i) the recent weakening in the Czech operating environment that Moody's believes will likely dampen earnings generation and pressure asset quality, and (ii) Moody's view that the weakening of SocGen's standalone credit profile heightens the risks posed by the close interlinkages between SocGen and the Czech subsidiary.

--- WEAKENING OPERATING ENVIRONMENT

Moody's says that the operating environment in the Czech Republic has weakened, as illustrated by the slowdown in economic output and further downside risks related to softer export demand from European trading partners. Real GDP contracted by 0.7% year-on-year in Q1 2012, and Moody's expects GDP growth of 0% in 2012, compared to 1.7% in 2011, whilst the European Commission forecasts an unemployment rate of 7.2% in 2012.

Despite Komercni Banka's strong capital position -- with a 13.6% Tier 1 ratio as of end-March 2012 -- and its solid funding profile, Moody's expects that the economic slowdown in the Czech Republic will outweigh these mitigating factors. Specifically, Moody's expects that the weakening operating environment will constrain earnings and exert pressure on the bank's problem loans (loans under special review) from the level of 5.7% posted at year-end 2011.

--- PRESSURES STEMMING FROM LINKAGES WITH PARENT GROUP

Moody's also considers that the weakening of SocGen's standalone credit profile poses challenges for Komercni Banka and impacts the Czech subsidiary's standalone credit strength. Moody's acknowledges that the domestic Czech financial regulator has tightened the extent to which Czech banks can be exposed to their parent groups; however, the rating agency also notes the risk of capital being up-streamed to the parent, which would directly affect Komercni Banka's capital cushion. Moreover, in the context of the competitive Czech banking sector, Moody's considers that there is a risk that overall group restrictions may impact the extent to which Komercni Banka can increase the volume of its risk weighted assets and position its franchise. Moody's also notes that cost reductions at group level may lead to a decline in operating support that has historically underpinned the bank's standalone strength.

Moody's recognises that Komercni Banka is an important part of SocGen's overall franchise, contributing approximately 12.7% of SocGen's net income in 2011.

SYSTEMIC SUPPORT ASSUMPTIONS AND NEGATIVE OUTLOOK

The deposit ratings of Komercni Banka, one of the largest banks in the Czech Republic, benefit from two notches of uplift due to systemic support, reflecting Moody's assessment of the very high probability of support from the Czech government, in case of need.

The negative outlook on Komercni Banka's deposit ratings reflects the pressures on the bank's standalone performance that could lead to the bank becoming weakly positioned in the C- BFSR category, resulting in a lower standalone credit assessment of baa2.

WHAT COULD MOVE THE RATINGS UP/DOWN

The negative outlook on Komercni Banka's deposit ratings reflects Moody's expectation that upward pressure on the bank's ratings is limited at this stage. Over time, the outlook could be changed to stable if the bank strengthens its performance metrics and/or the parent group's standalone profile strengthens.

Further downward pressure could be exerted on Komercni Banka's standalone and deposit ratings following (i) weaker-than-expected performance at the group level; and/or (ii) a worse-than-expected weakening of the operating environment.

RATINGS RATIONALE --- BRD -- GROUPE SOCIETE GENERALE (ROMANIA)

Today Moody's took the following rating actions on BRD - Groupe Société Générale (Romania):

- standalone BFSR downgraded to D-/ba3 from D/ba2, the outlook on the BFSR is negative

- long-term and short-term local currency deposit ratings downgraded to Baa3/Prime-3 from Baa2/Prime-2; the outlook on the long-term rating is negative

- long- and short-term foreign currency deposit ratings of Baa3/Prime-3 confirmed; the outlook on the long-term deposit rating is negative

Moody's says that the rating actions on BRD reflect (i) the deterioration of the operating environment in Romania, and (ii) the rapid increase in the bank's non-performing loans, counterbalanced by (iii) Moody's view of SocGen's continuing commitment to the Romanian market.

--- WEAKENING OPERATING ENVIRONMENT

Romania's economic performance has deteriorated, as its high dependence on external markets, particularly in terms of exports and private sector capital inflows, renders it vulnerable to the weakening growth prospects of the euro area. In Q4 2011 and Q1 2012, Romania registered mild quarter-on-quarter GDP contraction; private consumption and job creation remain subdued. Although Moody's expects economic performance to improve in the coming years, growth rates will likely remain well below the levels reported prior to the 2008 global financial crisis (over 6% GDP growth per annum), which will render income convergence with wealthier European countries more challenging, given the significant disparity in household income at 64% below the EU-27 average. Moody's expects the macroeconomic weaknesses to affect banking sector performance through weak credit demand, lower revenues and significant asset-quality pressures.

--- DETERIORATING ASSET QUALITY

As a reflection of the weakening operating environment, BRD's non-performing loans (NPLs) have increased significantly, reaching 16.8% of the total loan portfolio in December 2011 and continuing to increase in the first quarter of 2012. The deterioration in asset quality reflects the bank's (i) large loan exposure to the country's weak small and medium-sized enterprises; and (ii) significant level of foreign-currency lending (mainly euro-denominated), which accounts for approximately 56% of the total loan portfolio. Furthermore, as a result of the increase in non-performing loans, in conjunction with rapidly rising loan-loss charges and subdued credit growth, Moody's expects that BRD's profitability will remain under pressure through 2013. In Moody's view, the risk of further downward pressure on profitability is also driven by the bank's need to increase its provisioning coverage of NPLs, currently at a relatively modest 43%.

Although BRD's current capital buffer provides an adequate loss absorption capacity, with the Tier 1 capital ratio at 14.5% as of March 2012, the bank's capitalisation may provide only a limited cushion, in Moody's view, if the economic environment in Romania deteriorates more than currently expected.

--- SUPPORT ASSUMPTIONS AND NEGATIVE OUTLOOK

BRD is the second-largest bank in Romania, with market shares of around 15% in deposits and loans. SocGen holds a 60% stake in the bank and provides some funding to its subsidiary, mostly to finance its sizeable foreign-currency portfolio. These considerations, together with Moody's view of SocGen's commitment to the Romanian market, underpin Moody's assumptions of parental and systemic support for the bank, which result in a three-notch rating uplift from the current ba3 standalone credit assessment.

The outlook on BRD's ratings is negative, reflecting the possibility that the pressures on asset quality, profitability and capital, if sustained, could further weaken the bank's credit profile. Moody's also notes that BRD has some exposure to the Romania's state-owned electricity generator Hidroelectrica SA, which recently filed for insolvency, and these developments could exert additional pressure on the bank's balance sheet.

WHAT COULD MOVE THE RATINGS UP/DOWN

At this stage, upward pressure on the ratings is limited, as indicated by the negative outlook on the bank's ratings. Nevertheless, over the longer- term BRD's ability to maintain its large market position -- coupled with sustainable profitability and significant asset quality improvements -- could result in upward pressure on the ratings.

Downward pressure could be exerted if the bank became loss-making, which would have a material impact on the sustainability of BRD's large franchise in Romania and on its capitalisation level. In addition, further deterioration in the economic conditions in Romania, leading to an acceleration in non-performing loan formation, reduced commitment of the parent bank and/or downward pressure on Romania's ratings could exert downward pressure on BRD's ratings.

RATINGS RATIONALE --- ROSBANK, DELTACREDIT BANK AND RUSFINANCE BANK (RUSSIA)

SocGen holds an 82.4% stake in Rosbank, which, in turn, owns (100%) two other Russian subsidiaries: mortgage lender DeltaCredit and consumer lender Rusfinance.

Today Moody's took the following rating actions on these subsidiaries:

Rosbank:

- long- and short-term local and foreign currency deposit ratings downgraded to Baa3/Prime-3 from Baa2/Prime-2; the outlook on the long-term ratings is stable

- standalone BFSR, which was not subject to the review, unchanged at D/ba2, stable outlook

DeltaCredit Bank:

- long-term local and foreign currency deposit ratings downgraded to Baa3 from Baa2; the outlook on the long-term ratings is stable

- short-term foreign currency rating downgraded to Prime-3 from Prime-2

- local currency senior secured debt rating, benefiting from an explicit and irrevocable guarantee issued by SocGen, downgraded to Baa2 from Baa1; the outlook on the rating is stable

- standalone BFSR, which was not subject to the review, unchanged at D/ba2, stable outlook

Rusfinance Bank:

- long- and short-term local and foreign currency deposit ratings downgraded to Ba1/Not Prime from Baa3/Prime-3; the outlook on the long-term ratings is stable

- standalone BFSR, which was not subject to the review, affirmed at E+/b1, with stable outlook

The rating actions on the Russian entities is triggered by the reduction in the financial capacity of SocGen as a support provider, as indicated by SocGen's recent rating downgrade.

Moody's says that the one-notch downgrades of the Russian subsidiaries of SocGen were prompted by Moody's downgrade of SocGen's standalone ratings to C-/baa2, from which Moody's imputes rating uplifts for parental support.

SUPPORT ASSUMPTIONS

SocGen's Russian sub-group -- including Rosbank, DeltaCredit Bank and Rusfinance Bank -- ranks among the 10 largest banking groups in Russia and holds sizeable shares in certain market segments, such as mortgage lending and consumer finance. Despite the legal structure of SocGen's Russian sub-group, whereby Rosbank operates as an immediate parent for DeltaCredit and Rusfinance, Moody's incorporates a high assumption of parental support for all three Russian subsidiaries from SocGen directly. This reflects the close strategic oversight by SocGen over each bank and the sizeable financial flows between SocGen and each Russian subsidiary.

Moody's assumption of high parental support is underpinned by (i) Rosbank's role as a holding entity for all of SocGen's subsidiaries in Russia, (ii) the alignment of Rosbank's brand logo with that of SocGen, (iii) the rating agency's assessment of a material degree of strategic fit of Russian operations to those of the group, and (iv) SocGen's funding support to its Russian subsidiaries, mostly through financing a large portion of operations at DeltaCredit and Rusfinance, which maintain wholesale-funded business models. Moody's has also observed a history of capital support from the French parent to the Russian subsidiaries, and assumes a high likelihood that such support would be provided in the future, in case of need.

As a result of Moody's assumptions of high parental support, Rosbank's and DeltaCredit's deposit ratings now incorporate two-notches uplift to Baa3 (as opposed to three-notches of uplift previously), from these banks' standalone credit assessments of ba2, whereas Rusfinance's deposit ratings now incorporate three notches of uplift to Ba1 (as opposed to four-notches previously), from the bank's standalone credit assessment of b1.

RUSSIAN SUBSIDIARIES --- WHAT COULD MOVE THE RATINGS UP/DOWN

At this stage, near-term upward rating pressure on Rosbank and DeltaCredit from either a strengthening of standalone financial metrics and/or increases in uplift from parental support assumptions remains limited. In the case of Rusfinance Bank upward rating pressure could be triggered by (i) diversification and enhancement of the bank's funding base, resulting in lower interest expense levels over the longer term, and (ii) its ability to minimise reliance on the car-financing segment through diversification into other lending segments.

A reduced commitment of the parent bank towards its Russian subsidiaries, or a significant deterioration in asset quality, reduced profit generation and/or weakening liquidity positions could exert downward pressure on the banks' ratings.

DELTACREDIT'S LOCAL-CURRENCY SENIOR SECURED DEBT

The long-term rating assigned to DeltaCredit Bank's local currency debt, which benefits from an explicit and irrevocable guarantee issued by SocGen, is based on the standalone credit assessment of its guarantor. Accordingly, the downgrade of DeltaCredit Bank's senior secured debt to Baa2, with a stable outlook, from Baa1, reflects the lowering of the guarantor's standalone credit assessment to baa2, from baa1 previously.

LIST OF AFFECTED RATINGS

..Issuer: Komercni Banka, a.s.

Long-term local and foreign-currency deposit ratings confirmed at A2, with negative outlook

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

Bank financial strength rating downgraded to C-/baa1 from C/a3, with stable outlook

..Issuer: BRD -- Groupe Société Générale

Long- and short-term local-currency deposit ratings downgraded to Baa3/Prime-3 from Baa2/Prime-2, with negative outlook

Long- and short-term foreign-currency deposit ratings confirmed at Baa3/Prime-3, with negative outlook

Bank financial strength rating downgraded to D-/ba3 from D/ba2, with negative outlook

..Issuer: Rosbank

- Local and foreign currency deposit ratings downgraded to Baa3/Prime-3, with stable outlook, from Baa2/Prime-2

- Local currency senior unsecured debt rating downgraded to Baa3, with stable outlook, from Baa2

- Standalone BFSR of D/ba2 unchanged, stable outlook

..Issuer: DeltaCredit

- Long-term local and foreign currency deposit ratings downgraded to Baa3, with stable outlook, from Baa2, short-term foreign currency deposit rating downgraded to Prime-3 from Prime-2

- Local currency senior secured debt rating downgraded to Baa2, with stable outlook, from Baa1

- Standalone BFSR of D/ba2 unchanged, stable outlook

..Issuer: Rusfinance Bank:

- Local and foreign currency long-term deposit ratings downgraded to Ba1 from Baa3; stable outlook

- Local and foreign currency short-term deposit ratings downgraded to Not-Prime from Prime-3

- Local currency senior unsecured debt rating downgraded to Ba1 from Baa3; stable outlook

- Standalone BFSR affirmed at E+/b1, stable outlook

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were 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 of rated entity BRD -- Groupe Société Générale were initiated by Moody's and were not requested by these rated entities.

Rated entity BRD -- Groupe Société Générale or its agent(s) participated in the rating process. This rated entity or its agent(s)provided Moody's access to the books, records and other relevant internal documents of the rated entity.

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 rating(s) for BRD and Komercni Bank are as follows: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Information sources used to prepare the rating(s) for Rosbank, Deltacredit and Rusfinance Bank are as follows: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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 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 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.

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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.

Olga Ulyanova
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia

Yves?J?Lemay
MD - Banking
Financial Institutions Group
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Moody's takes actions on five subsidiaries of Soci?t? G?n?rale in Central Europe and Russia
No Related Data.
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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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