Positively, the creditworthiness of the Baltic banking
systems, particularly the Estonian system, benefits from high
foreign ownership from Nordic banks. The Nordic banks remain
committed to their Baltic subsidiaries, which they regard as
strategically important for their long-term regional growth
strategies.
The downward revision of the GPA estimate for the banking
system of Hungary (BBB/Negative/A-3), along with the placement
of the BICRA under review, reflects our expectation of asset
quality and liquidity weakening due to an economic contraction
expected in 2009, which is putting pressure on private and
public sector balance sheets, coupled with high unhedged
foreign currency lending. A EUR20 billion emergency package
from the International Monetary Fund (IMF) and a EUR2.3 billion
rescue package for the banking system, provided in November
2008, should help stabilize, but not normalize, the situation.
The confirmation of the BICRA and the GPA estimate for the
Czech banking system reflects the country's diversified and
competitive economy and moderately low fiscal and external debt
burdens, as well as the banking sector's strong international
ownership, supporting enhanced internal risk management, and
good financial performance. Constraints still exist, and the
most pressing challenge to creditworthiness is the capacity to
improve revenue generation and maintain adequate asset quality
as financial intermediation deepens and the economy matures.
Under our criteria, we consider all the East European
countries in this review as "supportive" of their banking
systems. Nevertheless, the capacity to support local systems is
limited, signifying that any weakening of foreign parent
support would not be easily offset through the use of public
funds. As such, our credit ratings on the countries' financial
institutions factor in ongoing implicit external support,
including advantages derived from bank status in the form of
preferential access to liquidity, prudential regulation, and
proactive supervision. Consequently, we give no rating uplift
to private-sector banks for potential government support in
line with our rating approach in "supportive countries".
The change in BICRAs and GPAs underpins all bank credit
ratings in Eastern Europe. They will not automatically lead to
rating changes, but could contribute to a change in the ratings
on banks on a case-by-case basis.
BANKING INDUSTRY COUNTRY RISK ASSESSMENTS
(Changed)
To From
Slovak Republic 4 5
Slovenia (Republic of) 4 5
Poland (Republic of) 5 6
Estonia (Republic of) 6 5
Lithuania (Republic of) 7 6
Latvia (Republic of) 8 7
(Unchanged)
Czech Republic 4
(Under review)
Hungary (Republic of) 6
INCIDENCE OF GROSS PROBLEMATIC ASSETS
To From
(Changed)
Hungary 25%-40% 15%-30%
Estonia 25%-40% 15-30%
Lithuania 25%-40% 15%-30%
Latvia 35%-50% 25%-40%
(Unchanged)
Czech Republic 15%-30%
Slovak Republic 15%-30%
Slovenia 15%-30%
Poland 25%-40%
