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Moody's: Bank Handlowy suffers rating cut to Baa3 following action on its parent City

June 25, 2012 | Cbonds

Bank Handlowy, a unit of Citibank, suffered a rating cut to Baa3, outlook stable, following a rating downgrade for its parent, Moody's said in a statement. 

Following is a statement by Moody's:

Moody's downgrades Bank Handlowy to Baa3; outlook stable

Action follows rating actions on parent bank

London, 22 June 2012 -- Moody's Investors Service has today downgraded by two notches the long-term deposit ratings of Bank Handlowy w Warszawie (BHW), a Polish subsidiary of Citibank, to Baa3 from Baa1. Concurrently, Moody's has downgraded the short-term rating to Prime-3, from Prime-2, and affirmed the D+ standalone bank financial strength rating (BFSR), mapping to baa3 standalone credit assessment. All of BHW's ratings now carry a stable outlook.

The rating actions on BHW was prompted by Moody's downgrade on 21 June

2012 of Citibank N.A.'s standalone BFSR to D+/ baa3, from C-/baa1, which indicates a reduced capacity of the parent bank to provide timely capital and funding support to its subsidiary. For more details on the rationale for Citibank's rating action, please refer to the press release "Moody's downgrades firms with global capital markets operations", published on

21 June, 2012.

Today's rating action concludes the review for downgrade of BHW's ratings, initiated on 21 February 2012, following a similar rating action on Citibank N.A.

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.

RATINGS RATIONALE

The downgrade of BHW's long-term rating was prompted by Moody's downgrade of Citibank N.A.'s standalone ratings to D+/baa3, from which Moody's imputes rating uplifts for the Polish subsidiary.

Prior to the rating action on Citibank, BHW's long-term rating benefited from notching uplift due to Moody's assumptions on parental support. The two-notch downgrade of the parent's standalone credit assessment to baa3

-- to a level in line with BHW's standalone assessment -- resulted in the removal of uplift from parental support and a corresponding two-notch downgrade for BHW's supported long-term rating to Baa3, with a stable outlook.

As Poland's eighth-largest bank in terms of total assets, with a predominantly corporate profile and relatively underdeveloped retail deposit franchise, BHW's Baa3 long-term ratings do not benefit from a notching uplift due to systemic support assumptions.

RATIONALE FOR THE STABLE OUTLOOK

In addition, Moody's affirmed BHW's standalone BFSR of D+/baa3 and revised the outlook to stable. All of BHW's ratings now carry a stable outlook.

The stable outlooks reflect the bank's track-record of robust profitability over the past three years, its strong and growing capital base and low loan-to-deposit ratio. Moody's notes that bank's reliance on short-term customer deposits is mitigated by above-average liquidity holdings. In addition, BHW's high, albeit improving, ratio of non-performing loans is partially offset by relatively high provisioning level, thus reducing pressure on capital.

WHAT COULD MOVE THE RATINGS UP/DOWN

The stable outlook on the bank's rating captures Moody's view that further downwards pressure is unlikely in the short-term. However, an erosion of the bank's corporate deposit franchise and increasing reliance on short-term funding sources could trigger downwards pressure on BHW's ratings. A significant deterioration in post-provision profitability and depletion of its capital base -- due to losses or dividend payments -- would also trigger downwards rating pressure.

In the medium-term, any upwards pressure would depend on BHW's ability to increase market shares relative to its peers, particularly the established market leaders with more universal profiles. However, Moody's notes that such strategic repositioning and the development of a retail franchise comparable to second-tier banks in Poland is unlikely to be achieved in the short-term.

LIST OF AFFECTED RATINGS

BHW

- Long-term local and foreign-currency deposit ratings downgraded to Baa3 from Baa1, stable outlook

- Short-term local and foreign-currency rating downgrade to Prime-3 from

Prime-2

- BFSR affirmed at D+/baa3 with stable outlook


Company: Citi Handlowy

Full company nameBank Handlowy w Warszawie S.A.
Country of riskPoland
Country of registrationPoland
IndustryBanks

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