• This is the highest possible rating of a Bulgaria-based bank, assigned by S&P and equaling the country’s rating.

The International Rating Agency Standard&Poor’s (S&P) revised the credit rating outlook of UniCredit Bulbank to stable. The rating of the bank was affirmed at ВВВ/А-3. In this way, the rating of UniCredit Bulbank is now equal to the rating of the country and this is the highest rating, which a Bulgaria-based bank can get by S&P.

As major reasons for the rating upgrade, the S&P analysts point to the financial and operational support on which the bank can rely on the part of its majority owner UniCredit SpA, its better performance than its peers over the past three years and the forecasts that the earnings generating capacity and the adequate capitalization will help UniCredit Bulbank to cope with the shift in asset quality in 2011. As a factor leading to the outlook revision there is also the stabilization of the market in Bulgaria and the stable medium-term prospects for growth of the country.

„The outlook revision and affirmation reflect our view that UniCredit Bulbank’s business and financial profile have proven sufficiently resilient to the depressed macroeconomic and difficult operating environment of the past three years and that the bank maintained a better financial performance than peers”, says the analysis by S&P. The rating of the bank takes into account the support on which the banking institution can rely from UniCtedit SpA (whose rating was also improved recently to А/Stable/А-1), the leading position of the bank in Bulgaria, the comparatively conservative risk profile and the adequate capitalization and liquidity, which are vital in the period of deterioration in the quality of the loan portfolio and decline of profitability, as expected for the whole sector.

The analysts of the international rating agency point out that UniCredit Bulbank has demonstrated a strong resilience to the economic downturn by maintaining lower levels of problem loans and stronger provisions than domestic peers. „This was in part due to its conservative risk profile and well-developed risk management framework. UniCredit Bulbank reported 8.5% non-performing loans (over 90 days overdue) as at the end of the third quarter of 2010, which was lower than the sector average of 10.6% for the same period”, states the report by S&P.

According to the report of the rating agency, one of the ways through which the bank offset the increased credit costs is by exercising strict control over operating costs. UniCredit Bulbank outperformed its peers with a return on assets of 1.6% (versus 0.9% average for the banking system) and a return on equity of 11.2% (versus 6.6% average for the banking system) for the first nine months of 2010.

The analysts at one of the top three leading international rating agencies define the capitalization of the bank as „adequate and enhancing financial flexibility in the current period of increased credit risks”.

Recently, UniCredit Bulbank became the first bank in Bulgaria authorized by the Central Bank to use the Internal Rating Based Approach under Basel II for credit risk.

S&P indicates that any potential improvement of the rating of UniCredit Bulbank is linked to improvement in the quality of the bank’s assets and profitability, as well as to positive development of the business environment in Bulgaria. To date the credit rating of the bank is at the same level as the rating of Bulgaria and according to the rules and regulations of the agency, the rating of an institution may not be higher than the sovereign rating.