Bank Gospodarki Zywnosciowej S.A. -- Moody's downgrades Bank Gospodarki Zywnosciowej to Baa2; outlook stable
London, 18 June 2012 -- Moody's Investors Service has today downgraded the long-term ratings of Bank Gospodarki Zywnosciowej SA (BGZ) to Baa2 from Baa1 and assigned a stable outlook to the rating. The short-term rating was confirmed at Prime-2. The standalone bank financial strength rating (BFSR) of BGZ at D (mapping to a standalone credit assessment of ba2) was not affected and the outlook remains stable.
The downgrade follows a rating action on 15 June 2012 on the bank's Dutch parent, Rabobank Nederland (Rabobank), whose ratings were downgraded to Aa2/Prime-1 from Aaa/Prime-1 and its BFSR was downgraded to B-/a1 from B+/aa2. For more details on the rationale for Rabobank's downgrade, please refer to the press release "Moody's downgrades Dutch banking groups; most outlooks now stable", dated 15 June 2012.
Today's rating action concludes the review initiated on 21 February 2012, when the ratings were placed on review for downgrade, following a similar rating action on Rabobank.
A full list of affected ratings is provided at the end of the press release. For additional information on bank ratings, please refer to the webpage containing Moody's related announcements: http://www.moodys.com/bankratings2012.
The one-notch downgrade of BGZ's long-term rating to Baa2, with a stable outlook, was prompted by Moody's downgrade on 15 June 2012 of Rabobank's standalone ratings to B-/a1, from which Moody's imputes rating uplifts for the Polish subsidiary.
However, Moody's still maintains a very high probability of parental support from the Dutch parent, which reflects Rabobank's role as a long-term strategic shareholder in BGZ, its record of providing foreign-currency funding and capital resources to BGZ and its long-term interest in the Polish agribusiness sector.
Moody's assumption of a very high parental support probability is also reinforced by Rabobank's tender offer to wholly acquire its Polish subsidiary in April 2012, of which it currently owns 60%. Moody's notes, however, that Rabobank's plan to acquire 100% ownership would require a divestiture of the Polish government's 25% stake in BGZ, thus reducing the incentives of the Polish authorities to provide additional support in case of need.
Accordingly, the current three notches of uplift in BGZ's long-term rating of Baa2-- which remains one of the highest of Western European bank subsidiaries in the region -- is driven solely by parental support assumptions.
The stable outlook on BGZ's long-term rating is driven by the stable outlook on Rabobank's standalone rating.
WHAT COULD DRIVE THE RATINGS UP/DOWN
Upwards pressure on BGZ's standalone rating would require a strengthening of the bank's franchise, as well as a sustainable improvement in its profitability and efficiency. An upgrade of BGZ's long-term rating is unlikely in the near future given the recent downgrade of the parent's rating and a relatively high notching uplift already incorporated into the rating.
The bank's standalone rating could be downgraded following a material erosion of its competitive position. A deterioration of the bank's asset quality could exert downward pressure on its standalone rating in light of its large exposure to the cyclical agricultural sector. A further downgrade of the parent's standalone rating could also exert downward pressure on BGZ's long-term rating, albeit unlikely given its stable outlook.
LIST OF AFFECTED RATINGS BGZ - Long-term local and foreign-currency deposit ratings downgraded to Baa2 from Baa1, stable outlook
- Short-term local and foreign-currency rating confirmed at Prime-2
The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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