Fitch Affirms UBB, Takes It off Watch Negative

A file photo dated 08 December 2011 shows an exterior view of the offices of Fitch Ratings in New York, New York, USA.

Fitch rating agency announced it has removed from rating watch negative the United Bulgarian Bank, majority-owned by the National Bank of Greece.

The agency has affirmed United Bulgarian Bank's (UBB) Long-term Issuer Default Rating (IDR) at 'B'. The outlook is negative due to pressure on its credit profile from weak asset quality and capitalization.

Meanwhile, the agency downgraded Banca Romaneasca's (BROM) Long-term IDR to 'B' from 'B+' due to its weak performance and greater reliance on its majority owner NBG for foreign currency funding. The outlook is stable.

The banks' 'B' Long-term IDRs remain one notch above that of NBG in light of the limited contagion which the subsidiaries have suffered to date from problems at NBG, Fitch said in an official statement.

It points out that customer deposit outflows at both banks have been manageable and liquidity has remained adequate.

Fitch believes that NBG's ability to provide financial support to the two subsidiaries will remain limited in the medium term due to its fragile risk profile.

Fitch does not expect that NBG's pending recapitalization will result in it contributing new equity to UBB or in a strengthened propensity of support to BROM or UBB, if required.

Fitch acknowledges that the Bulgarian and Romanian authorities would be likely to intervene to manage any problems arising at Greek bank subsidiaries, given their sizable aggregate market shares in both countries.

However, in Fitch's view, there is significant uncertainty as to whether national authorities would inject capital into Greek bank subsidiaries to the extent that their creditors become in a better position than those of parent banks.

The agency points out that UBB's loss absorption capacity is diminishing as a result of large unreserved non-performing loans and declining pre-impairment profit and retained earnings, which the bank's capitalization relies on.

Fitch expects economic growth for Bulgaria to slow in 2012, delaying asset quality recoveries and giving rise to potential further deterioration.

In Fitch's opinion, UBB and BROM remain sensitive to potential negative developments at the parent bank.

The banks could be downgraded in case of loss of deposits or parent bank funding. UBB could also be downgraded if further asset quality deterioration results in heightened capitalization pressures.

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