(Repeat for additional subscribers)
March 14 (The following statement was released by the rating agency)
Slovenian banks' asset quality is still a risk
despite the transfer of non-performing loans to the government-created "bad
bank", Fitch Ratings says. Impaired loans have not reduced substantially as
stricter loan classification has led to new inflows, even though official NPLs
The Bank of Slovenia highlighted the decline in 90+ day arrears on Tuesday.
These fell to 13.4% classified claims (including all on- and off-balance-sheet
credit risk exposures) in December, from 17.4% at end-3Q13, largely due to the
transfer of assets to the Bank Asset Management Company. But we believe asset
quality remains weak due to the large amount of impaired loans and still high
corporate leverage. The corporate sector needs about EUR5bn fresh equity,
according to the Bank of Slovenia.
Impaired loans (categories C, D and E under the local regulatory classification)
rose to 19.9% at end-2013, from 17.6% at end-3Q13. The EUR2.2bn drop in NPLs in
December, reflecting transfers to the bad bank from NLB and NKBM, appears to
have been effectively offset by around EUR1.9bn of new impaired loans. Most of
these are likely to be restructured loans that are less than 90 days in arrears,
and so are not reflected in NPL ratios. But they remain vulnerable to further
credit deterioration in the weak operating environment. We expect GDP in
Slovenia to grow by only 0.3% in 2014 before growing 1.3% in 2015.
The 6.5pp gap that opened between impaired loans and the NPL ratio between
end-1H13 and end-2013 largely reflects the asset-quality review conducted as
part of the recapitalisation and bad bank process. The central bank has said
that Slovenian banks now comply with the future harmonised credit risk
definitions for EU banks. This is a positive step, as stricter loan
categorisation enhances comparability and impaired loans should more accurately
reflect the risks and business model differences between banks.
The divergence between impaired loans and NPLs highlights the risks of only
focusing on the quantitative trigger of 90+ days past due. Analysing asset
quality is challenging, especially because of the delay in banks' publishing
audited financial statements. We will resolve the Rating Watch Positive on the
'b ' Viability Ratings of the three nationalised banks - NLB, NKBM and Abanka -
after they publish annual reports for 2013.
We expect to complete the review by end-2Q14 once we have assessed asset quality
and capital levels after the asset transfers, strategy and performance
prospects. The completion of the review of Abanka will also depend on the
European Commission's state aid decision, and the timing of further
recapitalisation and asset transfers.