Moody's Investor Service announced on Tuesday that it has placed Hungary's CIB Bank's long-term local currency deposit and debt ratings of Aa3 and bank financial strength rating (BFSR) of C- on a review for possible downgrade.
Moody's affirmed CIB Bank's long-term foreign currency deposit rating of A3 with a negative outlook as well as its Prime-1 short-term local currency and Prime-2 short-term foreign currency deposit ratings.
The review of CIB Bank's BFSR of C- will focus on the impacts of the weakening operating environment in Hungary on the bank's financial fundamentals. Moody's expects the bank's profitability to be significantly affected by increased funding costs, higher provisioning needs due to weakening asset quality and a potential decline in revenue generation as the economy slows. Moody's said that it anticipates deterioration in asset quality to be the main driver of the expected decline in the bank's profitability in the coming period, given CIB Bank's focus on corporate banking, and its significant exposure to project finance (primarily commercial real estate) and leasing that together account for approximately 43% of its loan portfolio, and the large share of foreign currency loans in its portfolio.
CIB Bank's liquidity and capital position is supported by Italy's Intesa SanPaolo (rated Aa2/P-1/B-), which holds 100% of the bank's share capital and is the main provider of its market funding. Moody's cautions that, although the parent can provide the bank with funding in euros, the large share of Swiss franc-denominated loans creates currency mismatches on the bank's balance sheet that have become more expensive and difficult to hedge in recent months.
Moody's has also placed on review for possible downgrade CIB Bank's long-term local currency debt and deposit ratings of Aa3, as these ratings would be negatively affected in the event of a potential downgrade of the BFSR. The bank's debt and deposit ratings are supported by the rating agency's assessment of the probability of parental and systemic support as very high in the event of need. The A3 long-term foreign currency deposit rating is on negative outlook as it is constrained by Hungary's A3 foreign currency deposit ceiling, which also carries a negative outlook.
Moody's issued its previous rating action on CIB Bank on November 7, 2008, when its foreign currency deposit ratings were downgraded to A3 (negative outlook)/Prime-2 from A2 (stable outlook)/Prime-1 as a result of a sovereign rating action that resulted in the downgrade of Hungary's ceiling for foreign currency deposits to A3 (negative outlook) from A2 (stable outlook). (MTI – Econews)