October 27 (SeeNews) - Moody's Investors Service said on Friday it has affirmed Croatian Bank for Reconstruction and Development's (HBOR's) Ba2 foreign-currency issuer rating and its provisional Ba2 foreign-currency backed senior unsecured Medium-Term Note (MTN) programme, while keeping the outlook on the long-term issuer rating stable.
At the same time, Moody's has withdrawn the state-owned development bank's standalone baseline credit assessment (BCA) of ba2, it said in a statement.
"The Ba2 issuer rating assigned to the Croatian Bank for Reconstruction and Development (HBOR) derives from the explicit, irrevocable and unconditional guarantee provided by the Government of Croatia (Ba2 stable) for HBOR's existing and future financial obligations," Moody's explained.
The ratings agency also said:
"Given that the Croatian government explicitly and unconditionally guarantees all of HBOR's liabilities, the bank's ratings are rated in line with those of the Government of Croatia reflecting the full risk transfer to the guarantor. This approach takes into account the bank's (1) unique policy function within the country with the mandate to facilitate the reconstruction of the Croatian economy by supporting infrastructure development and SME's access to finance; (2) full government ownership; and (3) supervision by the Croatian government and parliament, members of which form HBORs supervisory board. HBOR's liabilities are included in the government's debt.
Notwithstanding this approach, we recognise HBOR's robust capital buffers, with 60.6% Tier 1 ratio as of June 2017, the elevated asset risk the bank faces stemming from its policy role which is reflected in the relatively high ratio of non-performing loans to gross loans of 6.97% as of June 2017 and its stable but modest profitability. Further, though HBOR has a high reliance on market funding, this funding is mainly from multilateral institutions which largely mitigates refinancing risks.
WHAT COULD MOVE THE RATINGS UP/DOWN
The issuer rating of HBOR would move in tandem with the rating of the government of Croatia given HBOR's policy mandate, its full government ownership and the state guarantee".