OREANDA-NEWS. July 27, 2012. Fitch Ratings-London/Paris-20 July 2012: Fitch Ratings has affirmed Credit Europe Bank N.V.'s (CEB) and Credit Europe Bank Ltd's (CEBR) Long-term Issuer Default Ratings (IDRs) at 'BB' and 'BB-', respectively. The agency has also affirmed CEB's Viability Rating (VR) of 'bb' and upgraded CEBR's Vr to 'bb- 'from 'b+'. The Outlooks on the Long-term IDRs remain Stable. A full list of ratings actions is at the end of this comment.

CEB's Long-term IDR is driven by its standalone strength and is equalised with its VR, as Fitch believes that while there is a possibility that its owner, FIBAG, may support it in case of need, its ability to do so cannot be measured by Fitch and hence the agency does not rely on such possible support in its ratings. Given the bank's ownership structure and small franchise in the Dutch market, Fitch also does not include any potential support from the Dutch State in its rating. This is reflected in the Support Rating of '5' and Support Rating Floor of 'No Floor'.

CEB's VR reflects the banks good liquidity profile, in place to deal with the relatively higher risk nature of the bank's balance sheet, and its experienced management team, which has enabled performance to remain resilient. The bank continues to grow its retail deposit base and reduce subsidiary funding reliance, which Fitch considers positive.

However, the VR also reflects the fact that a large proportion of CEB's loan portfolio is granted in relatively high risk emerging markets (80% of gross-loans at end-2011) and is highly concentrated by borrower and by sector, particularly towards the real estate sector. Fitch believes that regulatory risk may be a concern in the future given that the bank is partly funding emerging market assets with deposits collected in the European Union. However, the moves towards self-financing of the subsidiaries may help reduce this risk.

Asset quality has moderately deteriorated, although strong loan growth has partially masked this trend. At end-2011, the bank had an impaired loans ratio of 4.8% (end-2010: 4.6%). The deterioration is largely attributable to the bank's Romanian exposure. Fitch believes asset quality will continue to deteriorate modestly over the medium term given the volatile economic conditions.

CEB's current level of capitalisation is considered by Fitch to be a negative rating driver given its emerging market exposure and planned growth ambitions. The bank reported a Fitch core capital ratio of 8.63% at end-2011, around 90 bps lower than at end-2010 partly because of the first time consolidation of its Turkish subsidiary in late 2011. The ratio does not take into account the concentration in its loan book.

CEB's VR is sensitive to further deterioration in capital resulting from fast growth as well as any increase in the risk profile of its emerging market exposure. Any increased industry or name concentrations as well as further asset impairment would likely result in a downgrade of both itsVR and in its Long-term IDR. Fitch sees little upward potential in the bank's ratings, although they may benefit from a longer track record of stable performance and stronger capitalisation.

The upgrade of CEBR's VR reflects the consistent track record of strong performance, sustained quality of management, adequate credit risks, solid capital, and moderate improvements in the bank'sfunding profile. CEBR's ROAE for 2011 was a strong 18% underpinned by an improved net interest margin and low credit costs. The bank's gross loan book grew by 33% in 2011 driven by a rapid increase in retail lending, particularly the bank's traditionally strong car financing franchise.

Credit risks remained well managed, with NPL generation below 2% of average performing loans. CEBR's capital also remains solid with a Fitch core capital ratio above 18% at end-2011, meaning the bank can almost double its loan impairment reserves to 14% of the portfolio before breaching

regulatory capital requirements under a hypothetical stress scenario.

The share of wholesale and money market funding and fiduciary deposits has decreased somewhat but remains significant at 54% of liabilities at end-2011. While in the remainder of 2012 CEBR may need to redeem around RUB13bn (16% of liabilities) of wholesale and money market debt (excluding USD133m piece of syndicated loan maturing in August 2012 already agreed to be renewed), the bank's liquidity buffer net of upcoming repayments is an adequate mitigant covering over 50% of customer accounts outstanding as of end-4M12.

CEBR's VR is unlikely to be upgraded again in the near term. However, a strengthening of the bank's domestic funding franchise, somewhat lower concentrations in the bank's corporate lending and continuation of the bank's solid performance would be positive for the standalone credit profile.

The VR could be downgraded if there was a marked deterioration in asset quality or large distribution of capital to the parent.

Following the upgrade of the VR, it now drives CEBR's Long-term IDR. At the same time, the Long-term IDR is also underpinned by potential support from CEB. The Long-term IDR could be upgraded if there was either an upgrade of CEB or an upgrade of the VR. The Long-term IDR could be downgraded if both CEB's Long-term IDR and CEBR's VR were downgraded.

The rating actions are as follows:

CEB

Long-Term Foreign Currency IDR affirmed at'BB' Stable Outlook Short-Term Foreign Currency IDR affirmed at 'B'

Viability Rating affirmed at 'bb'

Support Rating affirmed at '5'

Support Rating Floor affirmed at 'NF'

CEBR

Long-term foreign currency IDR: affirmed at 'BB-'; Outlook Stable National Long-term rating: affirmed'A+(rus)'; Outlook Stable Short-term foreign currency IDR: affirmed at 'B'

Viability rating: upgraded to 'bb-' from 'b+'

Support Rating: affirmed at '3'

Senior unsecured debt Long-term rating: affirmed at 'BB-'

Senior unsecured debt National Long-term rating: affirmed at 'A+(rus)