June 22 (SeeNews) - Ratings agency Moody's said it has assigned Counterparty Risk Ratings (CRRs) to Bulgarian banks First Investment Bank (Fibank) [BUL:5F4], Municipal Bank and Raiffeisenbank Bulgaria, in accordance with the update to its Banks rating methodology.
Moody's CRRs are opinions of the ability of entities to honor the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honored.
Moody's assigned Ba2 long-term CRR (local and foreign currency) and NP short-term CRR (local and foreign currency) to both Fibank and Municipal Bank, the ratings agency said in a statement on Wednesday.
The agency assigned a Baa1 long-term CRR (local and foreign currency) and P-2 short-term CRR (local and foreign currency) to Raiffeisenbank Bulgaria.
Moody's also said in its statement:
"RATINGS RATIONALE
In assigning CRRs to the banks subject to this rating action, Moody's starts with the banks' adjusted Baseline Credit Assessment (BCA) and uses the agency's existing advanced Loss-Given-Failure (LGF) approach that takes into account the level of subordination to CRR liabilities in the bank's balance sheet and assumes a nominal volume of such liabilities. For most of these banks, Moody's considers the likelihood of government support for CRR liabilities to be low, resulting in no rating uplift from their respective adjusted BCAs, considering the current European Union's bank recovery and resolution directive (BRRD) with legal restrictions on many forms of government support. For First Investment Bank in Bulgaria, Moody's considers the likelihood of government support for CRR liabilities to be moderate resulting in one notch of support in the bank's CRR. The moderate government support assumption reflects First Investment Bank's position as the third largest bank and the track record of support.
Although these banks are likely to have more than a nominal volume of CRR liabilities at failure, this has no impact on the ratings of some of these banks because the significant level of subordination below the CRR liabilities already provides the maximum amount of uplift allowed under Moody's rating methodology.
In all cases the CRRs assigned are equal to or higher than the rated banks' senior debt ratings. This reflects Moody's view that secured counterparties to banks typically benefit from greater protections under insolvency laws and bank resolution regimes than do senior unsecured creditors, and that this benefit is likely to extend to the unsecured portion of such secured transactions in most bank resolution regimes. Moody's believes that in many cases regulators will use their discretion to allow a bank in resolution to continue to honor its CRR liabilities or to transfer those liabilities to another party who will honor them, in part because of the greater complexity of bailing in obligations that fluctuate with market prices, and also because the regulator will typically seek to preserve much of the bank's operations as a going concern in order to maximize the value of the bank in resolution, stabilize the bank quickly, and avoid contagion within the banking system. CRR liabilities at these banking groups therefore benefit from the subordination provided by more junior liabilities, with the extent of the uplift of the CRR from the adjusted BCA depending on the amount of subordination.
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What Could Change the Rating Up/Down
The CRR may be upgraded if there is a strengthening in banks' operating environment or financial fundamentals in a way that will lead to an upgrade of their adjusted BCA or if Moody's revises upwards its assessment of authorities' willingness to provide support or if Moody's revises upwards its assessment of the government's capacity to provide support, captured by an upgrade in the sovereign ratings or related ceilings.
The CRR may be downgraded if there is a weakening in banks' operating environment or financial fundamentals in a way that will lead to a downgrade of their adjusted BCA or if Moody's revises downwards its assessment of authorities' willingness to provide support or if Moody's revises downwards its assessment of the government's capacity to provide support, captured by a downgrade in the sovereign ratings or related ceilings.
Finally, any change in these institutions' liability structure that may impact Moody's LGF analysis may affect the positioning of the CRR. For example, the CRR may be downgraded if an institution's liability structure changes in a way that negatively affects the amount of subordinated instruments below these CRR liabilities."
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