Nova Kreditna Rating Cut at S&P on Slovenia Bank’s Asset Quality

Nova Kreditna Banka Maribor d.d.’s credit rating was lowered by Standard & Poor’s, which cited a deterioration in the quality of the Slovenian state-owned bank’s assets.

The unsolicited public information rating was reduced to Bpi from BBpi, S&P said in a statement from Paris today. Public-information ratings are based on published financial information and information in the public domain. The unsolicited rating was initiated by S&P and “may or may not involve the participation of the issuer,” it said.

Slovenia, struggling to avoid becoming the sixth euro member to ask for a bailout after Cyprus, drafted a 4 billion-euro ($5.4 billion) bank recapitalization plan that would take up bad loans from ailing lenders. NKBM, which had a 205 million-euro 2012 loss, was one of four banks that failed last year to meet capital targets set by European regulators. Bank of Cyprus Pcl, Cyprus Popular Bank Pcl, known as Laiki Bank, and Italy’s Banca Monte dei Paschi di Siena SpA were the others.

“Capital has always been one of NKBM’s main rating weaknesses,” S&P analysts Pierre Gautier, based in Paris, and Maria Malyukova, based in Moscow, said in the statement. “In the weak environment and because of the highly leveraged corporate sector, notably the construction one, NKBM will continue to accumulate problem loans in 2013.”

NKBM rose 1.5 percent to 76 euro cents as of 1:08 p.m. in Ljubljana after reaching a record-low 72.2 euro cents earlier today. It has plunged 41.5 percent this year, compared with a 6.1 percent decline in Slovenia’s benchmark SBITOP stock index.

Recession, Loans

The Adriatic nation’s economy has struggled with two recessions over the past four years, sparking a wave of bankruptcies. Loan quality worsened at Slovenia’s largest state-controlled banks, including NKBM and Nova Ljubljanska Banka d.d., after the collapse of the construction industry, which fueled growth before the crisis.

Slovenia’s bank recapitalization proposal has been delayed by a political crisis that forced former Prime Minister Janez Jansa from office in February. His replacement, Alenka Bratusek, has pledged to follow through on the plan with unspecified changes.

NKBM’s non-performing loans surged to 7 billion euros, or 14.4 percent of all loans in Slovenia at the end of November, according to the central bank.

The downgrade reflects increasing pressure on NKBM’s solvency following the announcement of the 2012 financial results, S&P said. The bank’s non-performing loan ratio may “converge toward 30 percent” this year, it said.

“A surge in credit losses, especially in the fourth quarter of 2012, largely explains these weak results, but operating performance showed weaknesses, as well, notably in falling margins and volumes,” it said.