The downgrade of the Individual rating reflects the bank's deteriorating asset quality and lower internal capital generation given higher credit costs, Fitch said in a press release.
The agency said it has also affirmed the Short-term IDR at 'F2' and the Support rating at '2'. The Outlook for the Long-term IDR is Negative.
UBB is part of the National Bank of Greece group.
Fitch issued the following statement:
"Fitch Ratings-London-23 October 2009: Fitch Ratings has today affirmed United Bulgarian Bank's (UBB) ratings at Long-term Issuer Default (IDR) 'BBB+' and downgraded the Individual rating to 'D' from 'C/D'. The agency has also affirmed the Short-term IDR at 'F2' and the Support rating at '2'. The Outlook for the Long-term IDR is Negative.
The downgrade of the Individual rating reflects the bank's deteriorating asset quality and lower internal capital generation given higher credit costs.
The bank's IDRs and Support rating reflect Fitch's view of the high potential support UBB can expect to receive from its 99%-shareholder, National Bank of Greece (NBG, rated 'A-'/Outlook Negative), in case of need.
Asset quality ratios weakened considerably in H109, with NPLs (loans overdue by 90 days) reaching a high 5.6% of gross loans and this trend has continued. The coverage ratio also declined to a low 57%. Credit risk remains the main risk for UBB and Fitch expects asset quality ratios to deteriorate further as loans season in a contracting economy. Market risk is limited given UBB's fairly conservative and small investment portfolio.
Profitability and performance ratios, which have been primarily driven by strong loan growth in recent years, significantly deteriorated in H109. The weakening operating environment in Bulgaria resulted in higher loan impairment charges, which dramatically dampened profitability. Fitch expects profitability and performance ratios to continue their downward trend on additional loan impairment charges and lower business volumes.
Customer deposits, UBB's main non-equity funding source, decreased 3% year-to-date in H109 as corporate deposits shrank 17%. This led to further tightening in liquidity and the loans/deposits ratio increased to a high level of 176% at end-H109. Fitch nonetheless gains comfort from the parent's ability and propensity to support UBB's liquidity, if need be. Capitalisation is satisfactory to date with a Fitch- eligible capital ratio of 15.1% at end-H109, providing an extra buffer for further asset quality deterioration.
UBB was Bulgaria's third-largest bank by assets (about 14.1% and 10.4% national market shares of loans and deposits, respectively) at end-H109. Traditionally a corporate bank, UBB has been actively developing its retail and SME banking operations to become a universal bank.
In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs."
