Press Releases

Fitch Ratings affirms international rating of Banka Celje d.d.

Celje, 12 September 2008

Fitch cahnges Slovenia's Banka Celje's outlook to stable; Affirms ratings

Fitch Ratings-London-12 September 2008: Fitch Ratings has today changed Banka Celje's (BC) Outlook to Stable from Negative. Its ratings are affirmed at Long-term Issuer Default (IDR) 'BBB', Short-term IDR 'F3', Individual 'C', Support '3' and Support Rating Floor 'BB+'.

The Outlook change reflects measures initiated to restore capitalisation to a level more commensurate with the bank's current rating level, says Michael Steinbarth, Director in Fitch's Financial Institutions Group. These include a EUR35m share capital increase, approved by the bank's supervisory board, and scheduled to be completed in October 2008. Nevertheless, some concerns remain over the intense competition in the Slovenian banking sector, which may erode BC's regional franchise and profitability.

BC's ratings reflect its solid regional franchise, satisfactory profitability and sound asset quality, despite some concentration risk, supported by a stable operating environment. This is balanced by its small absolute size and sizeable equity exposure after taking into account forward agreements. Given BC's importance to the regional economy of Celje, Fitch believes there is a moderate probability that support would be forthcoming from the authorities, if ever required.

On a pro forma basis, the share capital increase would have resulted in a core capital ratio of around 10.6% at end-June 2008 according to Fitch's calculation. While BC aims for a Tier 1 capital ratio in the range of 7.5%-9%, Fitch considers the lower end of the range as tight for the bank's current rating level, given its loan concentration and equity holdings.

At end-June 2008, credit quality remained sound with an impaired loan/asset ratio of below 2%, while reserve coverage continued to be ample. Given the size of Slovenia's economy, the bank is vulnerable to loan concentrations in its loan book although the majority of large corporate exposure is highly rated, according to the bank's internal rating classes. Market risk is material, relating to exposures in equities, of which a sizeable part is being sold on to customers through forward agreements, and to structural balance sheet mismatches.

BC's funding profile benefits from a strong retail franchise in its home region of Celje where it has a 65%-70% market share in retail deposits. However, deposit growth has not kept pace with loan growth, as reflected in the deterioration in the bank's loan/deposit ratio to 126% from 108%. Since end-2007, BC has strengthened its liquidity. At end-June 2008, the bank held a EUR432m portfolio available for refinance with the European Central Bank, which over-compensated for the bank's liquidity gap in the one-month time band.

Nova Ljubljanska Banka (NLB, rated 'A-' (A minus)/Outlook Stable), Slovenia's largest bank, is aiming for majority ownership of BC. Regulatory approval for NLB to acquire BC's voting shares remains restricted to 49.9% (it owned 49.4% at end-June 2008). Fitch does not expect an imminent resolution over BC's future ownership structure. Fitch understands that NLB supports BC's planned capital measures with the aim to enable further growth, in line with BC's risk management principles.

BC is a privately owned universal regional bank. It is mainly active in retail and corporate lending and deposit taking. At end-June 2008, BC had 36 domestic outlets, employed 613 staff and its market share stood at around 6% of assets.

An updated Credit Analysis will shortly be available at www.fitchratings.com.

Contact: Sandra Mai Hamilton, London, Tel: +44 20 7682 72; Michael Steinbarth, +44 20 7682 7468.

Media Relations: Hannah Warrington, London, Tel: +44 (0) 207 417 6298.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.