S&P Downgrades Bulgarian American Credit Bank, Outlook Negative

Standard & Poor's has lowered its long-term credit ratings on Bulgarian American Credit Bank (BACB) to 'B' from 'B+', saying the likelihood of BACB receiving support in case of need from its parent bank, Allied Irish Bank has reduced.

The short-term rating is unchanged at 'B' and the outlook is negative.

The statement of the agency points out that the AIB has recently stated that its 49.99% investment in BACB is included among the investments to be disposed of as part of AIB's capital-raising plan, which shows that BACB as not strategically important to AIB.

"The ratings on BACB reflect our view of its concentrated exposure to the real estate and construction sector in Bulgaria, sharply deteriorating asset quality, higher-than-average liquidity risk, and its small niche franchise in the still-challenging domestic operating environment," S&P says.

The ratings are supported by BACB's strong capitalization and strong management team, which has a good knowledge of its niche business of secured lending to small and midsize enterprises.

"The negative outlook reflects our view of the impact of the difficult operating environment and weakening economy in Bulgaria on BACB's creditworthiness," said Standard & Poor's credit analyst Annette Ess.

"In particular, we are monitoring its asset quality and profitability, given its concentrated exposure to the domestic real estate and construction sectors."

The agency points out that it could revise the outlook on BACB to stable if the market environment in Bulgaria were to improve and pressure on BACB's financial profile--in particular, its asset quality--were to ease.

According to S&P an upgrade is unlikely in the short-term, unless BACB is acquired by a strong strategic investor that is committed to BACB's development and willing to provide extraordinary financial support.

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