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Moody's Escreveu:Rating Action: Moody's downgrades SID banka and government-guaranteed debt of two Slovenian banks
Global Credit Research - 06 Aug 2012
Actions follow sovereign downgrade
London, 06 August 2012 -- Moody's Investors Service has today downgraded the government-guaranteed debt ratings of Abanka Vipa (Caa1, negative; E/caa2, negative) and Factor Banka (unrated) to Baa2 from A2.

In addition, Moody's also downgraded to Baa2 from A2 the issuer and senior unsecured ratings of SID banka, d.d., Ljubljana (SID Banka), a government-owned specialised development bank whose liabilities benefit from a government guarantee. The rating actions follow the downgrade of the government bond ratings of Slovenia.

A full list of the affected ratings is provided at the end of this press release.

RATINGS RATIONALE

Today's action follows the weakening of the sovereign's creditworthiness, as captured by Moody's downgrade of Slovenia's government bond ratings to Baa2 from A2 on 2 August 2012. For more details on the rationale for the sovereign downgrade, please refer to the press release (http://www.moodys.com/research/Moodys-d ... -PR_252281).

-- ABANKA VIPA AND FACTOR BANKA

In downgrading the government-guaranteed debt issuance of both entities to Baa2 with a negative outlook from A2, Moody's notes that the rating is at the same level as the Slovenian government bond rating. This reflects the Republic of Slovenia's unconditional and irrevocable guarantee of the 'due and punctual payment' of all sums due and payable by both entities, as contractually required under the conditions of this debt instrument. All of Abanka's other ratings, including its standalone and supported long-term ratings were unaffected. In the case of Factor Banka, this is the only instrument that is rated by Moody's.

-- SID BANKA

Moody's downgraded the issuer and senior unsecured ratings of SID Banka, a government-owned specialised development bank, by three notches to Baa2 with a negative outlook from A2, in line with the action taken on the sovereign rating.

The bank continues to be rated at the same level as the government bond rating, based on the following considerations: (i) the bank's full ownership by the government; (ii) an explicit government guarantee on all the bank's liabilities (under the amended Slovene Export and Development Bank Act); and (iii) the bank's policy mandate in extending funding to development projects and the promotion of export activities in the Slovenian economy.

-- RATING SENSITIVITIES

Moody's notes that the sensitivity of the sovereign supported ratings will be directly influenced by rating actions on the government rating, in line with the aforementioned considerations on the nature of these instruments.

FULL LIST OF RATING ACTIONS

The following ratings were downgraded today:

..Issuer: Abanka Vipa d.d.

....Government-guaranteed senior unsecured ratings to Baa2 from A2 with negative outlook

..Issuer: Factor Banka

....Government-guaranteed senior unsecured ratings to Baa2 from A2 with negative outlook

..Issuer: SID banka, d.d., Ljubljana

....Issuer rating, to Baa2 from A2 with negative outlook

....Senior unsecured regular bond/debenture ratings to Baa2 from A2 with negative outlook.

http://www.moodys.com/page/viewresearch ... =PR_252363

Moody's Escreveu:New York, August 02, 2012 -- Moody's Investors Service has today downgraded Slovenia's government bond rating to Baa2 from A2, and has maintained the negative outlook.

RATIONALE FOR DOWNGRADE

--FIRST DRIVER: BANKING SYSTEM'S NEED FOR FURTHER RECAPITALISATION

The main driver underlying Moody's decision to downgrade Slovenia's sovereign rating is the country's challenged banking system and the consequently increased likelihood of further contingent liabilities crystallising for the sovereign. Specifically, the banking system is likely to face increases in non-performing loans on its books. Moody's notes that the government's ability to take on further debt to finance any further recapitalisation is increasingly constrained given the material deterioration in its debt metrics in recent years, and the support it has already provided to the banking system. This includes the capital support provided by the government to the country's largest lender, Nova Ljubljanka banka (NLB, rated B2/NP/E negative), of close to 1% of GDP in June 2012 given that no private-sector solution could be found.

Moody's believes that NLB, Nova Kreditna banka Maribor (NKBM, B3/NP/E negative) and Abanka Vipa (Caa1/NP/E negative), the country's three-largest banks, are likely to require capital support in the range of 2% to 8% of GDP depending on the severity of their asset-quality deterioration. The likelihood of support being needed is very high (Please refer to Moody's press release entitled "Moody's downgrades three Slovenian banks; outlook negative", published on 25 July 2012).

Moody's notes that this potential additional debt burden comes at a time when the government is already facing significant challenges in its efforts to consolidate its fiscal position. The general government deficit came in at 6% of GDP in 2010 and despite consolidation efforts that sought to bring the deficit close to 5% of GDP in 2011, capital transfers of 1.3% of GDP pushed the deficit to 6.4% for the year. These transfers were capital injections into loss-making state-owned enterprises (SOEs) and guarantees of the obligations of these SOEs, including an injection of 0.7% of GDP into NLB. For 2012, the government is targeting a general government deficit of 3.5% of GDP and for 2013 it expects to reduce the imbalance to 2.5% of GDP. However, continued weakness in the economy could hinder the achievement of these targets. Finally, additional capital injections into the banking system could materially affect the country's deficit trends.

--SECOND DRIVER: RISING FUNDING COSTS AND CONSTRAINED MARKET ACCESS

The second driver underpinning the decision to downgrade Slovenia's sovereign rating is the government's rising cost of funding, and its increasingly constrained financial market access. As a result of increasingly adverse market conditions this year, the government has had to shift the composition of its funding mix towards a greater reliance on shorter-term issuance and loans, rather than the typical issuance pattern of meeting most of its borrowing requirements through bond placements. Moody's believes that weakened demand for Slovenian longer-term securities are preventing the sovereign from tapping the markets, with the exception of short-term paper which the domestic market is more willing to buy. Moreover, the composition of its short-term funding has also shifted towards shorter maturities as the amount of securities with a maturity of less than one year has increased. Moody's notes that the government's liquidity position benefits from a significant cash balance deposited with the domestic banks due to its prefunding strategy in 2011. However, significant drawdown on these deposits to finance its deficit would likely affect the banks' liquidity position, which would also cause lending activities to contract and hinder economic growth.

--THIRD DRIVER: CONTINUED WEAK ECONOMIC CONDITIONS EXACERBATING FISCAL CHALLENGES

The third driver of Moody's rating action on Slovenia is the economy's continued weakness and its limited resilience to shocks, which are exacerbating the government's weakening financial strength and debt metrics. While the Slovenian economy is well-developed, with some specialisation in production of intermediate capital goods, it is relatively small and fairly concentrated, with a high reliance on exports, over 70% of which are destined for EU nations. Moreover, the range of product categories remains undiversified. The economy once again fell into recession in 2011 when output contracted by 0.2%, and Moody's expects the situation will worsen in 2012 with a larger decrease in economic activity of 2%. While in normal conditions the economy would be strong enough to withstand a temporary downturn, in the current environment the recession assumes a far greater significance, as it implies increasing asset impairments for the already weak banking sector and hinders the government's efforts to demonstrate its fiscal credentials and retain the confidence of investors.

Moody's believes that the country is at increasing risk of a financial shock. A banking system reliant on foreign funding, over-indebted corporates, a fragile construction sector, decreased cost-competitiveness and an enlarged deficit in the net international investment position, all suggest that Slovenia's adjustment process will be protracted and vulnerable to further deterioration in external conditions, causing significant uncertainty over the likely drivers of growth generation in the coming years.

WHAT COULD MOVE THE RATING UP/DOWN

Slovenia's government debt rating could be downgraded further in the event there is additional material deterioration in the country's economic prospects or a further deterioration in funding conditions as a result of new, substantial domestic economic and financial shocks from the euro area crisis or the banking sector. Should Slovenia's access to public debt markets become more constrained and the country were to require external assistance, the sovereign rating could transition to substantially lower rating levels.

Although unlikely in the near future, a substantial improvement in economic conditions, a more benign funding environment and a stabilisation of the banking system without the need for further support than what is currently expected by the authorities would lead to a stable outlook.

http://www.moodys.com/research/Moodys-d ... -PR_252281

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