Moody’s reviews Hungary’s MKB ratings for downgrade

Moody’s Investors Service has placed the following ratings of Budapest-based MKB Bank Zrt. (MKB) under review for possible downgrade: i) the Aa3 long-term local currency deposit rating, ii) the Aa3 foreign currency senior debt rating and iii) the A1 foreign currency subordinated debt rating. MKB’s C- bank financial strength rating (BFSR) and the A2 long term foreign currency deposit ratings were affirmed with their existing stable outlooks.

The rating action on MKB follows Moody’s decision to place on review for possible downgrade the C- BFSR of MKB’s German parent, Bayerische Landesbank. The rating action on BayernLB reflects its significant exposure to structured credit products and will consider what measures the bank and its shareholders may take in order to limit or offset the negative impacts linked to the structured credit product portfolio on the bank’s capital base.

MKB reported IFRS consolidated 2007 net income of EUR 63.6 mln and total assets of EUR 9.72 bln as of 31 December 2007.

Although MKB’s BFSR, which is a measure of its standalone financial strength, has not been affected by its parent’s exposures, the deposit and debt ratings for MKB incorporate uplift reflecting a possible support from BayernLB on a standalone basis and indirectly, from BayernLB’s cooperative group. However, a downgrade of BayernLB’s BFSR would reflect a reduction in BayernLB’s ability to support MKB and would thus result in a downgrade of MKB’s ratings. We note that MKB’s debt and deposit ratings also benefit from a very high probability of systemic support and the possible downgrade is limited to one notch.

As regards, MKB’s 60%-owned subsidiary bank in Bulgaria, Moody’s has affirmed the Ba1 long-term and Not Prime short-term deposit ratings of MKB Unionbank AD. Moody’s deposit ratings for MKB Unionbank AD incorporate an uplift reflecting possible support from its immediate parent, MKB Bank Rt; this uplift is based on the bank’s intrinsic strength, which has not been affected by the rating action on MKB or its parent, BayernLB. MKB Unionbank’s BFSR was also affirmed at D-. The outlook on all MKB Unionbank ratings remains stable.