VILNIUS - Rating agency Standard & Poor's said on August 26th that it had revised its outlook on Lithuanian AB Ukio Bankas to negative from stable.
At the same time, the 'BB' long-term ratings and 'B' short-term ratings on the bank were affirmed.
The outlook revision on Ukio reflects what S&P believes is "the bank's heightened credit risks arising from uncertain economic prospects in Lithuania where the bank operates."
"In addition to the deteriorating economic conditions, we believe that Ukio's credit risks have increased because the bank has experienced very high loan growth in the past 12 months in an untested operating environment that is exposed to macroeconomic overheating," said Standard & Poor's credit analyst
"Standard & Poor's considers that Ukio is exposed to high credit risk through its loan portfolio growth of over 100% in the last 18 months. This is well above the overall Lithuanian market lending growth rate, and most of the loans are to the riskier small and midsize enterprises and retail leasing sectors."
Although asset quality indicators remain at "relatively comfortable" levels, the first six months of 2008 have already seen a deterioration, with nonperforming loans increasing, S&P noted.
Standard & Poor's considers that Ukio is likely to face increased pressure on its asset quality as the economic conditions in Lithuania deteriorate. The outlook also factors in the expectation that Ukio will be able to maintain its relatively good financial performance and garnering of market shares in core business lines, while maintaining capital levels.
"The outlook could revert to stable if our concerns over the operating environment abate and the bank's asset quality proves resilient while it continues to deliver sustained profitability and strengthen its commercial and
financial position. Conversely, a weakening financial profile or operating environment, contributing to higher credit or market risks, could put downward pressure on the ratings," S&P said.