Standard & Poor's lowered its long-term counterparty credit rating on United Bulgarian Bank (UBB) to B- from B with a negative outlook, citing a deterioration of its competitive position in recent years as well as reputational contagion risk through its 99%-owner National Bank of Greece (NBG). The action follows the June 12 downgrade of NBG to CCC from CCC+.

S&P cited also a "weakening of the bank's competitive position over the past four years, due to balance-sheet contraction of about 12% from year-end 2010 to March 31, 2015" as well as "possible reduced prospects for UBB to attract customers, due to its ownership by the Greek bank". In Q1 2015 alone, UBB's retail and corporate deposits shrank by 1.6% and 11.5%, respectively. The deposit base, as well as the bank's access to wholesale funding could weaken further in view of a potential worsening of the difficult economic situation in Greece and at NBG, S&P warned.

Still, the agency believes that UBB has high systemic importance, given that it is the fourth-largest bank in Bulgaria by assets (equal to €3.3bn at end-March) and has a sound market share of some 10% by loans and retail deposits. It believes also that the Bulgarian government will provide extraordinary support to the bank in case of need.

Another positive factor is that UBB’s only remaining funding from its Greek parent is a BGN152.8mn subordinated loan to be repaid by end-2017 via annual installments.

This fact is largely in line with a statement of outgoing central bank governor Ivan Iskrov, who reported in his resignation letter of June 23 that the local Greek-owned banks do not have any exposures to Greece. Iskrov stated that the domestic lenders are also absolutely independent operationally. He claimed, possibly too optimistically, that this will protect them from any negative scenarios in Bulgaria’s southern neighbour.