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06 Aug 2010
London, 06 August 2010 -- Moody's Investors Service has today placed on review for possible downgrade
Parex Banka's B2 long-term local and foreign currency deposit ratings.
E bank financial strength rating (BFSR), which currently translates
into a Caa1 baseline credit assessment, has a stable outlook.
Moody's decision to initiate this review was prompted by the bank's
restructuring by the Latvian government as well as by the uncertainty
surrounding the final form of Parex Banka. At the same time,
Moody's has also placed on review for possible upgrade the B2 senior
unsecured rating for the bank's Eurobond issue further to its transfer
to Citadele Banka, the new "good bank".
On 1 August 2010, the Latvian government implemented a restructuring
plan for Parex Banka by transferring the bank's performing loan
assets and most deposits to the new bank, Citadele Banka.
Moody's understands that the new bank will focus on Latvia and the adjacent
Baltic region, while the remainder of Parex Banka will retain non-core
assets, specifically non-performing loans. Approximately
half of the old bank's loans were transferred to the new Citadele
Banka, while the other half remained on Parex's balance sheet.
Parex Banka will be focused on maximising the recovery of its remaining
non-performing assets and will run down its remaining assets in
the long term. Citadele Banka will service all existing client
accounts and restart lending and deposit activities.
Moody's decision to review for possible downgrade Parex Banka's
B2 deposit ratings reflects the uncertainty surrounding the final form
of Parex Banka following the restructuring -- in particular,
the specific split of assets and liabilities between the two entities
and the level of support from the government that the remaining entity
is likely to benefit from.
In terms of standalone financial strength rating, and based on preliminary
information, Moody's believes that the credit risk profile of Parex
Banka could be weaker than before because most of its assets relate to
non-performing loans (NPLs) whose final losses could be significant
under the current difficult economic conditions in Latvia. These
concerns will need to be balanced against the level of liquidity and capitalisation
the bank would be able to count on. Moody's says that the
current high level of systemic support included in Parex Banka's long-term
ratings (resulting in a two-notch uplift from the bank's BFSR)
will also need to be reconsidered to reflect the remaining systemic and/or
government support, if any, for Parex Banka. Moody's
understands that all deposits, except for a small portion of state
deposits, have been moved to the new bank. This may result
in a decrease of systemic support attributed to the remaining bank.
The review for possible upgrade on the B2 senior unsecured Eurobond reflects
Moody's expectation that the credit quality of Citadele Banka will
initially be stronger than that of Parex Banka. This is because
Citadele Banka is starting out without any non-core NPLs,
and has been recapitalised by the Latvian Government and the EBRD,
which hold stakes of 75% and 25% of Citadele Banka,
respectively. The review will focus on the standalone financial
strength as well as any systemic support for Citadele Banka.
Moody's last rating action on Parex Banka was implemented on 31 March
2010, when the rating agency changed the outlook from stable to
developing on Parex Banka's B2 long-term local and foreign currency
deposit and debt ratings.
The principal methodologies used in rating Parex Banka are "Bank Financial
Strength Ratings: Global Methodology" and "Incorporation of Joint-Default
Analysis into Moody's Bank Ratings: A Refined Methodology",
which can be found at www.moodys.com 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 Parex Bank can also be found in the
Rating Methodologies sub-directory on Moody's website.
Headquartered in Riga, Latvia, Parex Banka reported unaudited
total assets of LVL2.6 billion (EUR3.7 billion) at the end
of March 2010.
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's takes multiple rating actions on Parex Banka (Latvia)
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London E14 5FA
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