On 8 June 2011, Moody's Investors Service, one of the leading global rating agencies, downgraded the ratings of OTP banka from Baa1/P-2/D to Baa3/P-3/D-. OTP banka was assigned a long-term and a short-term bank deposit rating of Baa3 and P-3, respectively. The Bank’s financial strength rating was downgraded to D-. The outlook is negative.
The following debt ratings were also downgraded and were assigned negative outlooks:
- Junior subordinated rating to Ba3 (hyb) from Ba2 (hyb)
- Backed subordinated rating to Ba3 (hyb) from Ba2.
Moody's today downgraded the ratings of several Slovenian banks, including NKBM, who's ratings were placed on review for possible downgrade in January 2011. According to Moody’s the downgrades of the Slovenian banks are driven by (i) ongoing pressure on their capital positions, given significant asset-quality worsening in H2 2010 and expectations for further deterioration in 2011; and (ii) considerable refinancing needs that could challenge their ability to expand their business over the next 18 months.
Moody’s says that increasing levels of non-performing loans (NPLs) are undermining the Slovenian banks’ already slim loss-absorption cushions and notes that their gross NPLs reached 11-17% of gross loans at the end of 2010, up by almost 500 bps during the year.
Moody’s believes that corporate credit quality in Slovenia remains under significant negative pressure, within the context of high loan concentrations and the severe problems in the real-estate and construction sectors (accounting for 10-15% of the banks’ loan exposures). Over the past several months, there have been several defaults of large, highly leveraged holding and construction companies in Slovenia, whilst currently performing companies are also experiencing liquidity pressures.
OTP banka has the second-weakest asset quality amongst rated Slovenian banks (albeit trending more favourably) with a NPL ratio of 14% at end-2010, provision coverage of 50% and net NPLs accounting for about 80% of Tier I capital. Notwithstanding a €104 million capital issue in April -- which boosted the bank’s Tier I capitalisation by 200 basis points to 10% -- the bank’s capital buffer remains modest given the potential for asset-quality deterioration during 2011.
