Moody’s places Slovenia’s largest bank NLB on review for downgrade

Moody’s places Slovenia’s largest bank NLB on review for downgrade
By bne IntelliNews April 19, 2018

Moody’s Investor Service announced that it has placed on review for downgrade the ratings of Slovenia’s largest lender Nova Ljubljanska banka (NLB), which reflects Moody's assessment of the likely negative impact on NLB's credit strength of the delay in completion of the bank's restructuring, including its privatisation.

Slovenia had committed to sell 75% of the bank in a restructuring plan that served as a basis for the European Commission's approval of state aid to the bank in the 2013 bailout by 2017, but scrapped a planned IPO last June amid a dispute over the pricing of the offer and an ongoing lawsuit over Yugoslav-era deposits in Croatia. Despite warnings and pressure from the EC, NLB will likely not be sold in the coming months as parliamentary elections will be held on June 3. However, the bank remained in profit for the fourth consecutive year in 2017.

Moody’s said that the ratings review will focus on the developments around NLB's privatisation plans, including respective proposals by the government and the EC's assessment of such proposals.

“If Slovenia's authorities fail to provide satisfactory commitments to the bank's restructuring, including its privatisation, this could result in disciplinary actions against the bank by the EC, up to requiring repayments of the state aid it received. Such a scenario would undermine NLB's solvency and liquidity,” Moody’s said.

The rating agency noted that the EC published an invitation to submit comments regarding the its assessment of NLB's privatisation and the state aid it received on April 6. The EC pointed out that Slovenia's commitment to sell 50% of NLB's shares by December 31, 2017 had not been met, therefore it concluded that Slovenia had implemented the aforementioned state aid measures in an unlawful manner.

According to the EC, in order to preserve the balance of the existing commitments, Slovenian authorities should present additional measures within one month to compensate for NLB's delayed restructuring process. In particular, the government is expected to consider measures to ensure level playing field for NLB and its competitors, such as divesture of some of the bank's operations, Moody’s says.

The Commission stated that NLB received €2.32bn of state aid, including several recapitalisations and transfer of impaired assets, amounting to 20% of the bank's risk-weighted assets as of December 2012.

NLB’s ratings that will be reviewed and could be eventually downgraded by Moody’s are: b1 baseline credit assessment (BCA) and adjusted BCA, Ba1 long-term local and foreign-currency deposit ratings and Baa3(cr)/Prime-3(cr) long-term and short-term Counterparty Risk Assessments (CRA). The bank's Not Prime short-term deposit ratings are unaffected. The outlook on the long-term bank deposits has been changed to Rating under Review from Positive.

Related Articles

Polish banks Pekao and Alior end merger talks

Poland’s second-largest lender by assets, the state-controlled Bank Pekao, will not merge with smaller competitor Alior Bank, the pair announced on August 7. Both banks are units of ... more

Romania’s largest bank reports best H1 results in ten years

Banca Comerciala Romana (BCR) reported RON697mn (€150mn) net profit in H1, 130% up y/y and the best financial result in the past decade. The profit from operations edged up more modestly, by ... more

Much criticised Iranian central bank chief replaced amid rial crisis

Iranian President Hassan Rouhani on July 25 replaced the head of Iran’s central bank with the collapse of the Iranian rial (IRR) continuing to take a heavy toll on the country’s economy. ... more