LJUBLJANA (Slovenia), April 18 (SeeNews) – Moody's Investors Service said it has placed on review for downgrade Slovenia's Nova Ljubljanska Banka (NLB) ratings, as the government is delaying its privatisation.
Moody's may downgrade NLB's b1 baseline credit assessment (BCA) and adjusted BCA, Ba1 long-term local and foreign-currency deposit ratings and Baa3(cr)/Prime-3(cr) long-term and short-term counterparty risk assessments (CRA), the ratings agency said in a statement late on Tuesday.
The bank's not prime short-term deposit ratings are unaffected, while the outlook on the long-term bank deposits has been changed to rating under review from positive.
"Today's rating action reflects Moody's assessment of the likely negative impact on NLB's credit strength of the delay in completion of the bank's restructuring, including its privatisation," Moody's explained.
The privatisation of the bank has been one of the conditions for the European Commission (EC) to approve the state aid provided to NLB by the Slovenian government in 2011-2013.
Moody's also said:
"On 6 April 2018 the EC published an invitation to submit comments regarding the EC's assessment of NLB's privatisation and the state aid it received. The EC stated that Slovenia's commitment to sell 50% of NLB's shares by 31 December 2017 had not been met, therefore it concluded that Slovenia had implemented the aforementioned state aid measures in an unlawful manner.
According to the EC, in order to preserve the balance of the existing commitments, Slovenian authorities should present additional measures within one month to compensate for NLB's delayed restructuring process. In particular, the government is expected to consider measures to ensure level playing field for NLB and its competitors, such as divesture of some of the bank's operations.
The ratings review will focus on the developments around NLB's privatisation plans, including respective proposals by the government and the EC's assessment of such proposals. If Slovenia's authorities fail to provide satisfactory commitments to the bank's restructuring, including its privatization, this could result in disciplinary actions against the bank by the EC, up to requiring repayments of the state aid it received. Such a scenario would undermine NLB's solvency and liquidity.
The commission stated that NLB received EUR2.32 billion of state aid, including several recapitalisations and transfer of impaired assets, amounting to 20% of the bank's risk-weighted assets as of December 2012. In June 2017 the Slovenian authorities decided to halt the sale of shares of NLB because the government did not agree with the price for the bank that could potentially be achieved. In addition, the government claims that the privatisation is hindered by lawsuits against NLB stemming from Yugoslav-era savings deposits that were held at Ljubljanska banka in Zagreb, Croatia. In order to protect NLB, the Slovenian parliament is considering legislative changes that would ban NLB from making payments based on these lawsuits.
-- WHAT COULD MOVE THE RATINGS UP/DOWN
There is no upward pressure on the ratings as they are on review for downgrade. However, any agreement between the Slovenian government and the EC to swiftly resolve the standstill in NLB's privatisation will likely result in the stabilisation of the bank's ratings.
A failure to reach an agreement with the EC within the next two to three months may result in material financial costs for the bank and trigger its ratings downgrade.
LIST OF AFFECTED RATINGS
Issuer: Nova Ljubljanska banka d.d.
..Placed on Review for Downgrade:
....Adjusted Baseline Credit Assessment, currently b1
....Baseline Credit Assessment, currently b1
....Long-term Counterparty Risk Assessment, currently Baa3(cr)
....Short-term Counterparty Risk Assessment, currently P-3(cr)
....Long-term Bank Deposits, currently Ba1, outlook changed to Rating under Review from Positive
..Outlook Action:
....Outlook changed to Rating under Review from Positive".