TEXT-Fitch downgrades 6 Slovenian banks, outlook negative

Thu Aug 9, 2012 11:16am EDT

Aug 9 - Fitch Ratings has downgraded the Long-term Issuer Default Ratings
(IDRs) of Nova Ljubljanska Banka d.d. (NLB), Nova Kreditna Banka Maribor d.d.
(NKBM), Abanka Vipa d.d., Gorenjska Banka (GB), Banka Celje d.d. (BC) and
Probanka d.d.. The agency has also downgraded their Viability Ratings (VRs) and
lowered the Support Rating Floors (SRFs). At the same time, the agency has
affirmed Banka Koper's (BK) IDRs and downgraded its VR. The Outlooks on the
Long-term IDRs of all the banks are Negative. A full list of rating actions is
at the end of this commentary.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: NLB AND NKBM'S IDRS AND SRFS
The downgrades of the Long-term IDRs of NLB and NKBM to 'BBB-' from 'BBB', and
revisions of the SRFs, reflect the weakening of the Slovenian government's
credit profile, and hence its ability to provide support to the banks (see
'Fitch Downgrades Slovenia to 'A-'; Outlook Negative' dated 8 August 2012 at
www.fitchratings.com). The three-notch difference between the sovereign's
ratings and the state-owned banks' ratings reflects the current lack of an
articulated and credible plan to strengthen NKBM and NLB's solvency, and
previous delays with capital injections into both banks.

At the same time, the ratings continue to be driven by the banks' majority state
ownership, high systemic importance, the track record of capital support (albeit
after significant delays) in H111 (NKBM and NLB) and in Q212 (NLB), the
potential availability of EU support mechanisms for bank recapitalisation, in
case of need, and Fitch's base case expectation that the recapitalisation needs
of the two banks (about EUR1.5bn under the base scenario) should be affordable
for the sovereign. Fitch's view of probable support also takes into account the
government's stated intention to maintain a blocking minority (25% stake plus
one share) in both banks and potential reputational damage for the authorities
should NKBM or NLB default.

The Negative Outlooks on NKBM's and NLB's ratings reflect the Negative Outlook
on the sovereign rating. The ratings could be downgraded again if there was a
further sovereign downgrade, a prolonged failure to articulate and implement a
bank recapitalisation plan, or if the banks' recapitalisation needs are
substantially greater than currently anticipated.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: VRS; ABANKA, GB, BC AND
PROBANKA'S LONG-TERM IDRS
The downgrades of the seven banks' VRs reflect varying degrees of further
deterioration in their standalone profiles, in light of growing impaired loans,
tighter capitalisation and the weaker than expected performance of the Slovenian
economy, which Fitch now forecasts to contract by 1.1% in 2012.

The VRs also continue to reflect high levels of credit risk in the banks'
corporate loan portfolios, particularly exposures to the highly leveraged real
estate/construction sector and holding companies, and low levels of reserve
coverage of impaired loans. They also reflect the banks' generally weak
pre-impairment performance, driven by moderate interest rate spreads and high
levels of non-cash generating assets.

However, the VRs also consider the present generally comfortable liquidity
positions of the banks, which are sufficient to service market funding.
Loan/deposit ratios remain high, but wholesale funding providers have to a large
degree been shifted from international financial markets to the fully-state
owned Slovene Export and Development Bank and the ECB. Fitch notes that deposits
have generally been stable to date, which is also underpinned by material
long-term deposits sourced from the central government.

In total, Fitch estimates that a further EUR3.5bn (about 10% of forecast 2012
GDP) of fresh capital will be needed to restore the sector's viability, assuming
a rise in NPLs to 25% (end-May: about 18%, based on Fitch's estimations),
prudent NPL provisioning at 80% and a system Tier 1 ratio of 10%. However,
recapitalisation needs may reach EUR5.5bn (about 15.5% of GDP) should NPLs rise
to 33%.

The downgrades of Abanka, GB, BC and Probanka's VRs have also driven the
downgrades of their Long-term IDRs. The revision of the SRFs also contributed to
the downgrades of Abanka, BC and Probanka's Long-term IDRs.

Each of the seven banks' VRs could be downgraded again if there is a further
marked deterioration in asset quality, capitalisation or liquidity (for example
due to significant deposit outflows). If a downgrade of Abanka, GB, BC or
Probanka's VR is not offset by provision of external support, the Long-term IDRs
of these banks would also be likely downgraded. A stabilisation of the inflow of
bad debts, strengthening of capitalisation (capital increases are currently
planned at some banks) and improved performance of the Slovenian economy would
reduce negative pressure on the ratings.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: SRFS OF ABANKA, GB, BC AND
PROBANKA
The downgrades of Abanka, GB, BC and Probanka's SRFs reflects Fitch's revised
opinion on the potential for state support to be made available to domestic,
privately-owned banks. In Fitch's view, support from the Slovenian authorities
for these banks is uncertain and cannot be relied upon given their private
ownership, the reluctance of the authorities to inject capital into state-owned
banks, and the banks' smaller market shares, relative to NLB and NKBM. Abanka's
SRF of 'B-' reflects its higher domestic systemic importance compared with other
private banks in Slovenia.

The SRFs of the privately-owned domestic banks could be upgraded if the
authorities articulate and implement a plan to recapitalise the banking sector
as a whole.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: BK's IDRS
BK's IDRs are driven by potential support from its 97.56% owner, Intesa Sanpaolo
('A-'/Negative). The ratings could be downgraded if ISP's Long-term IDR, which
currently has a Negative Outlook, was downgraded.

The rating actions are as follows:

NLB
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB', removed from
Rating Watch Negative (RWN), assigned Negative Outlook
Short-term foreign currency IDR: affirmed at 'F3 ', removed from RWN
Support Rating: affirmed at '2', removed from RWN
Support Rating Floor: revised to 'BBB-' from 'BBB', removed from RWN
Viability Rating: downgraded to 'b-' from 'b'

NKBM
Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB', removed from
RWN, assigned Negative Outlook
Short-term foreign currency IDR: affirmed at 'F3 ', removed from RWN
Support Rating: affirmed at '2', removed from RWN
Support Rating Floor: revised to 'BBB-' from 'BBB', removed from RWN
Viability Rating: downgraded to 'b-' from 'bb'
Hybrid capital instrument: downgraded to 'CC' from 'B+'

Abanka
Long-term foreign currency IDR: downgraded to 'B-' from 'BB-', removed from RWN,
assigned Negative Outlook
Short-term foreign currency IDR: affirmed at 'B'
Support Rating: downgraded to '5' from '3', removed from RWN
Support Rating Floor: revised to 'B-' from 'BB-', removed from RWN
Viability Rating: downgraded to 'b-' from 'b'
Hybrid capital instrument: downgraded to 'CC' from 'CCC'
Guaranteed notes: downgraded to 'A-' from 'A'

Probanka
Long-term foreign currency IDR: downgraded to ' CCC' from 'B', removed from RWN
Short-term foreign currency IDR: downgraded to 'C' from 'B'
Support Rating: downgraded to '5' from '4', removed from RWN
Support Rating Floor: revised to 'NF' from 'B', removed from RWN
Viability Rating: downgraded to 'ccc' from 'b-'

Banka Celje
Long-term foreign currency IDR: downgraded to 'B+' from 'BB', Negative Outlook
Short-term foreign currency IDR: affirmed at 'B'
Support Rating: downgraded to '5' from '3', removed from RWN
Support Rating Floor: revised to 'NF' from 'BB-', removed from RWN
Viability Rating: downgraded to 'b+' from 'BB'

Gorenjska Banka
Long-term foreign currency IDR: downgraded to 'BB- from 'BB', Negative Outlook
Short-term foreign currency IDR: affirmed at 'B'
Support Rating: downgraded to '5' from '3', removed from RWN
Support Rating Floor: revised to 'NF' from 'BB-', removed from RWN
Viability Rating: downgraded to 'bb-' from 'bb'

Koper
Long-term foreign currency IDR: affirmed at 'BBB+', Negative Outlook
Short-term foreign currency IDR: affirmed at 'F2'
Support Rating: affirmed at '2'
Viability Rating: downgraded to 'bb' from 'bb+'

Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16
August 2011 and 'Rating Bank Regulatory Capital and Similar Securities', dated
15 December 2011, are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Rating Bank Regulatory Capital and Similar Securities
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