January 27 (SeeNews) - Standard&Poor's Ratings Services said on Monday it has cut the long-term rating on Croatian lender Zagrebacka Banka [ZSE:ZABA-R-A] to BB from BB+.
The outlook on the bank's rating is revised to stable from negative, S&P said in a statement.
The stable outlook on the bank reflects that on the sovereign.
"The downgrade reflects our similar action on Croatia on Jan 24, 2014, prompted by our view that the economic and budgetary policy measures the Croatian government has introduced have so far been insufficient to foster economic growth and place public finances on a more sustainable path," the statement said.
S&P also said in the statement:
"[..] We expect the factors behind the sovereign rating action to have negative implications for our view of the economic and industry risks affecting the Croatian banking industry.
According to our criteria, the long-term rating on Zagrebacka banka is capped by the long-term foreign-currency rating on the sovereign (see "Banks: Rating Methodology And Assumptions," published Nov. 9, 2011). Considering the bank's high exposure to the Croatian government through holdings in government securities and lending to government-related entities, we don't believe that its rating can be higher than the sovereign.
We continue to consider Zagrebacka banka to be a "strategically important" subsidiary of UniCredit Bank Austria AG, which is the controlling shareholder with an 84.5% stake. According to our criteria, this could potentially yield up to three notches of support above the bank's stand-alone credit profile (SACP) (see "General Criteria: Group Rating Methodology," published Nov. 19, 2013). We believe Zagrebacka banka fits well with UniCredit's objective to be a major player in commercial banking in Central and Eastern Europe. Since Zagrebacka banka's SACP is not lower than the long-term sovereign rating, we do not factor any support into the long-term rating on the bank.
The stable outlook mirrors that on the sovereign. The outlook balances our expectations of medium-term benefits from EU accession against our view of limited prospects for significant economic-growth-enhancing reforms.
We would lower the rating on the bank if we lowered the rating on the sovereign. This could be triggered by some deterioration in the sovereign's funding position and further deterioration in its external accounts.
We would raise our rating on the bank if we took similar action on the sovereign. A sovereign upgrade could be triggered by significant improvement in economic growth prospects and government finances."
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