Standard & Poor's Ratings Services said on Jan 27 it lowered its long-term counterparty credit rating on Croatia's Zagrebacka Banka, part of UniCredit Group, to BB from BB+, reflecting the similar downgrade on the sovereign executed several days earlier .

The outlook of the bank's ratings is stable in line with that of Croatia's, the S&P said in a statement.

The S&P downgraded on Jan 24 Croatia's sovereign ratings to 'BB' from 'BB+' due to weak economic growth and budgetary prospects, saying the government has not done enough to contain the five-year recession, which will likely spread in 2014 for a sixth year in a row.

The long-term rating on Zagrebacka Banka is capped by the long-term foreign-currency rating on the sovereign, the S&P said.

Considering the bank's high exposure to the Croatian government through holdings in government securities and lending to government-related entities, the agency believes that its rating cannot be higher than the sovereign.

The S&P said it continues to consider Zagrebacka Banka as a "strategically important" subsidiary of UniCredit Bank Austria, which controls a 84.5% stake in the Croatian unit. The agency added it believes that Zagrebacka Banka fits well with UniCredit's objective to be a major player in commercial banking in Central and Eastern Europe.

According to preliminary data of the Croatian central bank, Zagrebacka Banka was the largest bank in terms of assets among 31 lenders operating in Croatia, with assets of HRK 106.5bn (EUR 13.9bn) at the end of September.

The stable outlook mirrors that of the sovereign and balances the S&P's expectations of medium-term benefits from the EU accession against its view of limited prospects for significant economic-growth-enhancing reforms.