Moody’s maintains negative view on four Bulgarian banks

Moody's Investors Service is maintaining a negative view, with some downgrades of the ratings of four Bulgarian banks following its reassessment of the vulnerability of their earnings and capital positions to increased credit losses arising from the deepening recession in Bulgaria.
The affected banks are First Investment Bank AD, DSK Bank, Raiffeisenbank (Bulgaria) EAD and MKB Unionbank AD.
FIB’s financial strength rating (BFSR) was downgraded to D- from D and the long-term local and foreign currency deposit ratings were also downgraded to Ba2 from Ba1. All ratings carry a negative outlook.
DSK Bank’s BFSR was confirmed but the outlook was changed to negative. The local currency deposit ratings were downgraded to Baa3/Prime-3 from Baa2/Prime-2.
Raiffeisenbank’s D+ BFSR and Baa3/Prime-3 local and foreign currency deposit ratings were all affirmed with their existing negative outlook.
MKB Unionbank’s D- BFSR and Ba2/Not Prime local and foreign currency deposit ratings were also affirmed with their existing negative outlook.
Moody's said its rating actions on the banks were prompted by its reassessment of the vulnerability of their earnings and capital position to increased credit losses arising from the deepening recession in Bulgaria, which has resulted in higher corporate defaults, rising unemployment levels and lower disposable income for individuals.
More specifically, the corporate sector's financial performance in the country has weakened significantly, mostly due to lower demand for Bulgaria's exports from its main export partners and from the declining foreign direct investment. At the same time, the retail sector has also been pressurised by the deteriorating labour market, which has led to a decline in disposable income and, in turn, to lower consumer demand.
Although the banking sector continues to remain profitable, strongly capitalised and has good liquidity levels, Moody's notes that the above conditions led to increased credit losses in the system, with total systemic non-performing loans growing to 5.63% of total loans as at end-September, up from 2.41% at end-2008.
"Given that asset quality metrics lag behind macroeconomic indicators by several months, it is crucial that the banks' current ratings incorporate Moody's expectations of their future losses," said Elena Panayiotou, lead analyst at Moody's for the Bulgarian banks.