Both upgrades were a result of increased probabilities that the banks' controlling shareholders, Swede-bank and Skandinaviska Enskilda Banken respectively, will help them out in case of difficulty.
Swedebank currently holds a 49.95 percent stake in Hansapank and intends to maintain control over the bank.
"This equity participation seems to fit in well with Swedbank's strategy of establishing an alliance of banks around the Baltic region, which can only be developed over the longer term," Moody's observed.
A greater involvement by Swedbank's management in Hansapank, a closer integration between the two banks, and an increase in Swedbank's stake to above 50%, may strengthen further the likelihood of support, thus placing upward pressure on Hansapank's deposit ratings, the agency said.
Also, upwards rating pressure on the deposit ratings may arise if the operating environment in Estonia further stabilizes and Hansapank's financial position improves. Moody's however believes that at this stage of economic development, the operating environment in Estonia does not support any banks with a rating higher than Hansa-pank's D+.
Hansapank's short-term deposit ratings and financial strength rating were confirmed at Prime-3 and D+, respectively and the outlook for Hansapank's ratings remains stable.
Uhispank's long-term deposit ratings stand at Baa3, short-term deposit ratings at Prime-3, and financial strength rating at D.
Moody's said that the change in the outlook in Uhispank's long-term deposit ratings from stable to positive are a result of the recent actions by Skan-dinaviska Enskilda Banken.
SEB has already increased its stake in Uhispank from 32 percent in November 1998 to 45 percent today, and has publicly declared its intentions to up its stake to 50 percent over the long term.
"Had SEB not taken a large minority stake in the bank at the end of 1998, there would have been strong negative pressure to downgrade Uhispank in view of high 1998 losses, an inadequate equity base and large refinancing obligations," Moody's said.
Uhispank's financial strength rating at D lags the D+ rating of Hansapank, which reflects the substantial amount of work that still has to be done to improve the bank's risk management and funding, the agency pointed out.
Uhispank's franchise is also not as developed and diversified as its larger peer's and this translates into lower earnings.
As in the case of Hansapank, the Estonian operating environment's vulnerability to external shocks and the banking market's small size in absolute terms are constraining factors on Uhispank FSR, Moody's said.
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