S&P says may cut KBC ratings on news of expected loss

NEW YORK, Oct 15 (Reuters) - Standard & Poor's on Wednesday placed ratings of the core entities of Belgian financial services group KBC (KBC.BR) on review for a possible downgrade after the company said it expects a loss of about 900 million euros in the third quarter.

S&P said the action applies to the "AA-minus" long-term counterparty credit rating on KBC Bank NV and the "AA-minus" long-term rating on KBC Insurance NV.

In S&P's scale, "AA-minus" is the fourth-highest investment grade.

The agency also placed the "A-plus" long-term rating on holding company KBC Group N.V. and Irish unit IIB Bank PLC on CreditWatch negative. The "A-plus" rating is fifth-highest investment grade.

Any downgrade is expected to be limited to one notch.

KBC became the latest Belgian financial company to be hit by the financial crisis with its disclosure earlier today that credit portfolio writedowns would push it to a loss for the quarter.

The group said a ratings cut by Moody's Investors Service on its bank and insurer's collateralized debt obligations (CDOs) had triggered a charge of 1.6 billion euros.

Shares fell over 19 percent in Brussels. For more, see [ID:nLF191934].

S&P said the group's ratings are supported by a "sound operating performance" in the retail banking markets of Belgium, Central and Eastern Europe and Russia.

"Asset quality indicators remain robust, even though cost of credit risk rose from extreme lows to 0.19 percent of average loans in the first half of 2008," said the agency.

However, the bank is also exposed to some markets in Central and Eastern Europe that are currently experiencing economic turmoil, including Russia, Hungary and Bulgaria.

S&P said its review will consider the likelihood of further writedowns on the CDO portfolio as well as the impact on the bank's image of the surprise announcement. (Reporting by Ciara Linnane; Editing by Theodore d'Afflisio)