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Rating Action:

Moody's upgrades three Slovenian banks' ratings

25 Oct 2016

Positive outlook assigned on deposit ratings

NOTE: On October 28, 2016, the press release was corrected as follows: The unsolicited and non-participating issuer disclosures and the lists of the affected ratings were color-coded in purple. Revised release follows.

London, 25 October 2016 -- Moody's Investors Service has today upgraded the ratings of three Slovenian banks. This concludes the review for upgrade initiated on 04 August 2016. For further information on this rating action, please refer to Moody's press release (Moody's places three Slovenian banks' ratings on review for upgrade, https://www.moodys.com/research/--PR_353052). The review was prompted by the rating agency's change of its Macro Profile for Slovenia to "Moderate-" from "Weak+". The strengthening of the Macro Profile is driven by the improvement in the Slovenian banks' operating environment, in particular a significant improvement in the banks' funding conditions following a reduction in wholesale borrowings in the past few years. A gradual recovery in credit demand should support banks' lending growth and revenues after several years of loan book contraction.

For a detailed analysis of Slovenia's Macro Profile please click on the following link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1034717

The following banks are affected by today's rating actions:

- Nova Ljubljanska banka d.d.'s long-term local and foreign-currency deposit ratings were upgraded to Ba3 from B2, the long-term Counterparty Risk Assessment (CRA) was upgraded to Ba2(cr) from Ba3(cr), the baseline credit assessment (BCA) and adjusted BCA were upgraded to b3 from caa1; the outlook on the long-term deposit ratings is positive.

- Nova Kreditna banka Maribor d.d.'s long-term local and foreign-currency deposit ratings were upgraded to B2 from B3, the BCA and adjusted BCA were upgraded to b3 from caa1, the long-term CRA was affirmed at Ba3(cr); the outlook on the long-term deposit ratings is positive.

- Abanka d.d.'s long-term local and foreign-currency deposit ratings were upgraded to Ba3 from B3, the long-term CRA was upgraded to Ba2(cr) from Ba3(cr), the BCA and adjusted BCA were upgraded to b2 from caa1; the outlook on the long-term deposit ratings is positive.

All short-term deposit ratings and short-term CRA rating inputs of the banks were unaffected by today's rating actions.

The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

(1) CHANGED MACRO PROFILE REFLECTS IMPROVING OPERATING ENVIRONEMENT IN SLOVENIA AND BENEFITS BANK'S CREDIT PROFILES

Moody's change of Slovenia's Macro Profile to "Moderate-" from "Weak+" on 04 August 2016 positively affects the rated Slovenian banks' BCAs and the outcomes of Moody's Advanced Loss Given Failure (LGF) analysis. The Macro Profile constitutes an assessment of the macroeconomic environment in which a bank operates.

The change of the Macro Profile illustrates Moody's assessment of the improvement in Slovenian banks' operating environment, in particular a significant improvement in banks' funding conditions following a reduction in wholesale borrowings in the past few years, thereby lowering vulnerability to potential dislocations in funding markets. A gradual recovery in credit demand should also support banks' lending growth and revenues after several years of loan book contraction. The improving operating environment will benefit Slovenian banks' credit profiles by containing funding risks, helping to reduce the high level of problem loans and restoring their profitability.

Under Moody's Advanced Loss-Given-Failure (LGF) analysis, the loss rate Moody's uses for banks with a Macro Profile of "Moderate-" and higher is 8% of tangible banking assets, as opposed to 13% for banks with a lower Macro Profile. This has resulted in increased rating uplift due to lower severity of loss faced by the different liability classes in resolution.

Moody's assessment of improvements in the operating environment coupled with the outcomes of the Advanced LGF analysis under the applicable loss rates for a Macro Profile of "Moderate-" has resulted in various rating actions of Moody's rated banks in Slovenia, in particular upgrades of the banks' BCAs and adjusted BCAs as well as upgrades and/or affirmations of the banks' deposit ratings and CRAs.

(2) BANK-SPECIFIC CONSIDERATIONS

Nova Ljubljanska banka d.d. (NLB)

According to Moody's, the two-notch upgrade of NLB's long-term deposit ratings to Ba3 from B2 was driven by: (1) the upgrade of the bank's BCA and adjusted BCA to b3 from caa1; (2) two notches of rating uplift from Moody's Advanced LGF analysis (one notch uplift previously); and (3) unchanged moderate public support assumption from Slovenia's government (Baa3 positive) for NLB, as the country's largest bank, which provides one notch of rating uplift.

The rating agency added that the upgrade of NLB's BCA to b3 from caa1 reflects the improved Moderate- Macro Profile combined with improvements in the bank's asset quality and profitability, as well as its maintaining good capital adequacy. The bank's reported NPL ratio declined significantly to 22.1% as of end-H1 2016, from 30.9% as of year-end 2014, owing mainly to sale and write-off of some of the problem loans. In H1 2016 NLB reported a net income of EUR72.1 million, which translates to a return on average assets (RoAA) of 1.22%, up from 0.81% in 2015 and 0.53% in 2014. Limited lending growth and moderate profitability will underpin NLB's good capital adequacy with its Tier 1 ratio at 16.6% as of end-H1 2016. NLB is largely deposit-funded, with a gross loan-to-deposit ratio of 88% as of end-H1 2016.

The positive outlook assigned on the long-term deposit ratings reflects Moody's expectation that the improvement in profitability and asset quality will continue to enhance the bank's solvency and overall credit profile.

The application of the Moderate- Macro Profile in Moody's Advanced LGF analysis, including a lower 8% loss at failure assumption, has resulted in lower loss-given failure and higher rating uplift for deposit ratings. This, combined with the upgrade of the BCA has resulted in two and one notches of upgrade, respectively, for the bank's long-term deposit ratings and CRA.

Nova Kreditna banka Maribor d.d. (NKBM)

The one-notch upgrade of NKBM's long-term deposit ratings to B2 from B3 was driven by: (1) the upgrade of the bank's BCA and adjusted BCA to b3 from caa1; (2) one notch of rating uplift from Moody's Advanced LGF analysis (no uplift previously); and (3) removal of the previously applied one notch uplift from government support following the completion of the bank's privatisation in April 2016.

The upgrade of NKBM's BCA to b3 from caa1 reflects the improved Moderate- Macro Profile combined with improvements in asset quality and capital adequacy. The bank's NPLs ratio declined modestly to 37.9% as of end-H1 2016 from 40.3% as of year-end 2014. While solvency risks from such a high level of problem loans is considerable, rising NPLs coverage with loan loss reserves at 68.8% and strong capital adequacy with a Tier 1 ratio of 25.3% as of end-H1 2016 are important mitigants. In H1 2016 NKBM Group reported a net income of EUR29.3 million, which translates to a RoAA of 1.40%, up from 0.4% in 2015 and 0.5% in 2014. NKBM is predominantly deposit-funded, with a gross loan-to-deposit ratio of 77% as of end-H1 2016.

The positive outlook assigned on the long-term deposit ratings reflects Moody's expectation that the improvement in profitability and asset quality will continue to enhance the bank's solvency and overall credit profile.

The application of the Moderate- Macro Profile in Moody's Advanced LGF analysis, including a lower 8% loss at failure assumption, has resulted in lower loss-given failure and higher rating uplift, which combined with an upgrade of the BCA but also removed uplift from government support has resulted in a one notch of upgrade for the bank's long-term deposit ratings. These factors, however, have no impact on the uplift for NKBM's long-term CRA which was therefore affirmed at Ba3(cr).

Abanka d.d. (Abanka)

The three-notch upgrade of Abanka's long-term deposit ratings to Ba3 from B3 was driven by: (1) the upgrade of the bank's BCA and adjusted BCA to b2 from caa1; (2) two notches of rating uplift from Moody's Advanced LGF analysis (no uplift previously), and (3) removal of the previously applied one notch uplift from government support as Abanka has to be privatized over the next few years as part of the European Commission's conditions for government aid it received in 2013 and 2014.

The upgrade of Abanka's BCA to b2 from caa1 reflects the improved Moderate- Macro Profile combined with improvements in asset quality, profitability and capital adequacy. The bank's reported NPL ratio declined to 15.9% as of year-end 2015, from 18.2% as of year-end 2014, while the NPLs coverage with loan loss reserves rose to a comfortable level of 89.1%. Abanka's return to profitability in 2015 after several years of large losses further strengthened its capital with its Tier 1 ratio increasing to 26.8% as of end-H1 2016 from 19% year-end 2014.

The positive outlook assigned on the long-term deposit ratings reflects Moody's expectation that the improvement in profitability and asset quality will continue to enhance the bank's solvency and overall credit profile.

The application of the Moderate- Macro Profile in Moody's Advanced LGF analysis, including a lower 8% loss at failure assumption, has resulted in lower loss-given failure and higher rating uplift, which combined with the upgrade of the BCA but also removed uplift from government support has resulted in three and one notches of upgrade, respectively, for the bank's long-term deposit ratings and CRA.

-- WHAT COULD MOVE THE RATINGS UP/DOWN

A further improvement in the operating environment for Slovenian banks leading to a considerable reduction in problem loans and maintaining strong capital ratios, could have positive rating implications.

A deterioration in the country's Macro Profile and/or in individual banks' standalone financial metrics may have negative rating implications.

Furthermore, alterations in the bank's liability structure may change the amount of uplift provided by Moody's Advanced LGF analysis and lead to a higher or lower notching from the banks' adjusted BCAs, thereby affecting deposit ratings and CRAs.

LIST OF AFFECTED CREDIT RATINGS

Upgrades:

Issuer: Nova Ljubljanska banka d.d.

....LT Bank Deposits (Local), Upgraded to Ba3 Positive from B2 Rating Under Review

....LT Bank Deposits (Foreign), Upgraded to Ba3 Positive from B2 Rating Under Review

....Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1

....Baseline Credit Assessment, Upgraded to b3 from caa1

....Counterparty Risk Assessment, Upgraded to Ba2(cr) from Ba3(cr)

Issuer: Nova Kreditna banka Maribor d.d.

....LT Bank Deposits (Local), Upgraded to B2 Positive from B3 Rating Under Review

....LT Bank Deposits (Foreign), Upgraded to B2 Positive from B3 Rating Under Review

....Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1

....Baseline Credit Assessment, Upgraded to b3 from caa1

Issuer: Abanka d.d.

....LT Bank Deposits (Local), Upgraded to Ba3 Positive from B3 Rating Under Review

....LT Bank Deposits (Foreign), Upgraded to Ba3 Positive from B3 Rating Under Review

....Adjusted Baseline Credit Assessment, Upgraded to b2 from caa1

....Baseline Credit Assessment, Upgraded to b2 from caa1

....Counterparty Risk Assessment, Upgraded to Ba2(cr) from Ba3(cr)

Affirmations:

Issuer: Nova Kreditna banka Maribor d.d.

....Counterparty Risk Assessment, Affirmed Ba3(cr)

All other ratings and rating assessments of the banks captured by today's rating actions remain unaffected.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis Abanka d.d. or their agents are considered to be participating entities. These rated entities or their agents generally provide Moody's with information for their ratings process.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Armen L. Dallakyan
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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