(The following statement was released by the rating agency)
LONDON/WARSAW, April 28 (Fitch) Fitch Ratings has affirmed
d.d.'s (ZABA) Long-term Issuer Default Rating (IDR) at 'BBB'
with a Negative
Outlook. Fitch has also affirmed Privredna Banka Zagreb d.d.'s
Ratings at '2'. A full list of rating actions is available at
the end of this
KEY RATING DRIVERS - ZABA's IDRS AND SUPPORT RATING
ZABA's Long- and Short-term IDRs and Support Ratings are based
support available from its ultimate parent, UniCredit S.p.A.
BBB+/Negative/bbb+). The affirmation of the Long- and Short-term
Support Rating reflects Fitch's view that UC will continue to
have a strong
propensity to support ZABA given the strategic importance of the
Eastern Europe (CEE) markets to UC. The Negative Outlook on the
mirrors that on the Croatian sovereign.
Although ZABA's direct owner's, UniCredit Bank Austria AG (UCBA,
A/Negative/bbb+), Long-term IDR at present benefits from Fitch's
potential support from Austrian sovereign due to its systemic
does not incorporate any potential support coming directly from
UCBA into ZABA's
IDRs and Support Rating. This reflects Fitch's view that the
authorities would probably look to UC to provide support to the
before allowing any Austrian sovereign support to flow through
to these entities
as well as Fitch's expectation of weakening sovereign support
(for more details
on the latter please see 'Fitch Revises Outlooks on 18 EU
Commercial Banks to
Negative on Weakening Support' available at
www.fitchratings.com). This view
also considers the risk that any potential negative developments
at UC could
ultimately also result in deterioration of UCBA's standalone
weakening its ability to provide support to the CEE
RATING SENSITIVITIES - ZABA's IDRS AND SUPPORT RATING
Any downgrade of UC's Long-term IDR would likely result in a
downgrade of ZABA's
ZABA's IDRs could also be downgraded if (i) UC markedly changes
strategy, resulting in a lower expectation of parent support for
subsidiaries in the region in general, and ZABA in particular;
or (ii) Croatia's
Country Ceiling being downgraded to 'BBB-' from 'BBB'. Fitch
second scenario to be more likely given the Negative Outlook on
sovereign rating of 'BB+'.
The upgrade of ZABA's Long-term IDR would be contingent on both
UC and the
Croatian sovereign being upgraded.
ZABA's Support Rating could be downgraded to '3' from '2' if the
Long-term IDRs are downgraded by two notches, to 'BB+' from
KEY RATING DRIVERS AND SENSITIVITIES - PBZ's SUPPORT RATING
PBZ's Support Rating of '2' reflects Fitch's opinion that there
is a high
probability that PBZ's 77% owner, Intesa Sanpaolo
support its subsidiary should the need arise. In light of the
strategic focus on the broader CEE, Fitch believes, PBZ is a
subsidiary for its parent.
PBZ's Support Rating could be downgraded in case of a
multi-notch downgrade of
the parent bank's Long-term IDR, indicating a reduced ability to
subsidiary, which Fitch currently does not expect. A multi-notch
Croatia's Long-Term IDRs, and hence its Country Ceiling, could
also cause the
Support Rating to be downgraded.
KEY RATING DRIVERS- ZABA's VR
ZABA's 'bb+' Viability Rating (VR) reflects its leading market
capitalisation and funding profile. It also considers a
and changing regulatory environment.
ZABA is the largest bank in Croatia with around a 26% share in
deposits in the domestic banking system. Therefore, its
standalone profile has
been negatively affected by the prolonged recession, which
resulted in continued
private sector deleveraging and high unemployment (17.6%), and
hence, a marked
deterioration of domestic banks' assets quality and
Fitch forecasts 0.2% GDP contraction for 2014 and only 0.6%
growth in 2015. With
no marked economic recovery, ZABA's asset quality is likely to
pressure. Impaired loans at ZABA reached 16% of total gross
loans at end-2013,
slightly above the banking sector average of 15.6% and Fitch
expects the ratio
to worsen as the economy remains in recession.
ZABA's capitalisation was sound at end-2013 with a Fitch Core
(FCC) of 28.6%. However, moderate reserve coverage of impaired
loans resulted in
considerable net impaired loans at 36% of FCC, weakening
somewhat the quality of
capital. Furthermore, internal capital generation is likely to
be subdued in the
short- to medium-term due to the weak economy and also due to
changes (Consumer Credit Act and higher provisioning
requirements with the
change in law by the Croatian National Bank in October 2013),
pressure on capitalisation.
RATING SENSITIVITIES - ZABA's VR
An upgrade of ZABA's VR is unlikely, given the risks associated
with the weak
operating environment in Croatia.
The VR is sensitive to a further deterioration in the operating
including that evidenced by a potential downgrade of the
According to Fitch criteria the sovereign rating would often act
as an effective
cap on the maximum level of VR in a jurisdiction.
The VR is also sensitive to the continued recessionary
environment resulting in
reduced profitability through i) further deterioration of asset
to higher non-income generating assets on the balance sheet, ii)
lower levels of
earnings from no or low loan growth and higher loan impairment
charges due to
increased impairments. If these result in pressure on
capitalisation the VR will
most likely be downgraded.
The rating actions are as follows:
Long-term foreign currency IDR: affirmed at 'BBB', Outlook
Short-term foreign currency IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bb+'
Support Rating: affirmed at '2
Support Rating: affirmed at '2'
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Additional information is available at www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating
January 2014are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
National Scale Ratings Criteria
Rating FI Subsidiaries and Holding Companies
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