Moody’s downgrades AB Ukio Bankas Lithuania

Moody's Investors Service has downgraded the long-term global local and foreign currency deposit ratings of AB Ukio Bankas (Ukio Bankas) to B2 from Ba3 and its bank financial strength rating (BFSR) to E+ from D-. The outlook on the long-term ratings is negative and the outlook on the BFSR is stable.
Moody's multi-notch downgrade was triggered by the significant decline in Ukio Bankas's profitability and asset quality and expectation of a further weakening in asset quality due to the deteriorating credit conditions in Lithuania; the bank's high single borrower concentration, its high exposure to the corporate and SME segments, and its exposure to real estate and construction; and, the bank's stretched capital adequacy levels.
Ukio Bankas's net profit in 2008 was LTL 48 mln (EUR 14 mln), a decrease of 40% from its reported net profit of LTL77 mln (EUR 23 mln) in 2007. Moody's sees the decline as primarily driven by a significant increase in loan loss provisions, which accounted for 52% of pre-provision income. Also, the bank reported a 26% decrease in pre-provision income, which was largely a reflection of negative market value adjustments.
Ukio Bankas's asset quality weakened in 2008. Problem loans accounted for 9.8% of gross loans at the end of 2008, up from 7.3% at the beginning of the year and Moody's expects the problem loan ratio to rise. In Moody's view, the capital levels are stretched given the bank's high credit concentration risk and its questionable asset quality development.
The negative outlook on the bank's ratings reflects Moody's concerns that the bank's profitability and asset quality could weaken further given the difficult operating environment in Lithuania.
Headquartered in Kaunas, Ukio Bankas reported consolidated assets of LTL 3.9 bln (EUR 1.2 bln) at the end of 2008.