RTTNews - Moody's Investor Services on Thursday downgraded the ratings of six banks in the Baltic region. The banks include BIGBANK in Estonia, Siauliu Bankas in Lithuania along with the Baltic International Bank, the Norvik Banka, Mortgage and Land Bank and the Trasta Komercbanka banks in Latvia.
The agency said the rating actions were driven by the speed and depth of the deterioration in the Baltic economies of Estonia, Latvia and Lithuania, and its impact on the banks' standalone creditworthiness, as measured by their bank financial strength ratings (BFSRs).
Moody's said with the three economies in deep recession, corporate defaults were rising and this could lead to significantly increased losses on the banks' corporate loan portfolios. Moreover, the rating agency expects delinquencies in the banks' retail portfolios to rise, reflecting higher unemployment, lower income levels and a likely further decline in house prices.
The agency expects these potential losses and substantial provisioning needs to weaken Baltic banks' profitability and capital positions over the next two years.
Moody's said the probability of a devaluation in the Latvian lats has declined, owing to the Latvian parliament's approval of a fiscal package that was welcomed by the EU and IMF. However, the firm noted that a devaluation cannot be ruled out completely, as economic and social pressure in Latvia will continue to be high for sometime.
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