Limassol (Internet)- Moody Investors Service lowered the bank financial strength ratings of Všeobecná Úverová Banka to E from D, and of Slovenská Sporiteľňa to E+ from D, and confirmed the long-term deposit ratings of the banks at Ba2, and their ratings for subordinated debt at Ba1. Moody`s said it lowered the bank financial strength ratings, which are stand-alone ratings excluding external support considerations, because of the banks` weakened profitability and high levels of intransigent problem

loans, as well as the difficult Slovak environment. Ineffective bankruptcy proceedings and limited tax deductions for loan loss provisions and for unpaid interest on loans have restricted the banks` ability to restructure their loan portfolios. Meanwhile the banks are vulnerable to further increases in problem loans, especially if there is an economic downtown in Slovakia which looks increasingly likely. Moody`s said it confirmed the banks` debt and deposit ratings, which do factor in external support, because it considers it very likely that in an extreme situation the state would support these banks, given their majority ownership by the state via the National Property Fund and that they comprise a large part of the financial system. VÚB maintains a leading position in Slovak banking, and is especially dominant in corporate banking. The bank`s market share of loans was about 30%, and its share of deposits about 25% at year-end 1997. However, it has an extremely high level of classified loans, inadequate loan loss provisions, and insufficient capitalisation. The tight money market circumstances in Slovakia combined with the bank`s increased overhead burden resulting from its network and service expansions has severely weakened the bank`s preprovision profitability. The state`s 1997 Revitalisation Act, which was enacted to help revive certain strategic companies by giving them certain concessions including protection from bankruptcy, seems to be counter to the banks` own interest delaying rather than promoting loan portfolio clean-up by encouraging delinquent payment behaviour on the part of the borrowers participating in the program. VÚB has increased its primary funding, but it remains reliant on interbank funding. Slovenska Sporitelna is the largest bank in Slovakia and dominates retail banking with over 50% of individual deposits, although its shares have been eroding with the onset of competition. Despite its good liquidity and lower cost funding base, the bank`s profitability is also under pressure. The bank`s results remain very treasury dependent. It needs to continue to develop loan and fee generating capacity but is constrained by its capital position and its difficult market. Its program to modernise its network and add services and products has also resulted in rising overheads. A high percentage of SS`s lending is also classified as irregular. Because Slovenska Sporitelna did not inherit the same high level of credits from the state as part of the transformation process as did VÚB, the size of Sporitelna`s classified loans and provision shortfall are not as great as those of VÚB. VÚB had SK 155 billion of assets, and SS had SK 170 billion of assets at year-end 1997.

Autor: Internet