Fitch Ratings has downgraded Banca Romaneasca's (BROM) Long-term Issuer Default Rating (IDR) to 'B-' from 'B', and affirmed United Bulgarian Bank's (UBB) Long-term IDR at 'B'. The Outlook on both IDRs is Negative. A full list of rating actions is at the end of this release.

BROM and UBB are majority-owned by National Bank of Greece (NBG, 'CCC') domiciled in Romania and Bulgaria, respectively. BROM's downgrade reflects the bank's high dependence on NBG for foreign currency funding and liquidity, and considerable uncertainty as to the continued availability of this funding if Greece were to exit the European Monetary (EMU). UBB's affirmation reflects the bank's significantly lower dependence on parent funding.

At end-Q112, NBG accounted for 42% of BROM's total non-equity funding, most of which is short-term and euro-denominated, and NBG also provides significant off-balance sheet foreign currency hedges to BROM. The funding and hedging instruments are expensive and negatively impact BROM's profitability and ultimately capitalisation. However, the facilities are crucial to supporting the bank's foreign currency liquidity and maintaining the bank's FX position within regulatory limits.

Parent bank funding accounted for a more moderate 10% of UBB's liabilities at end-Q112. Since 2009, UBB has achieved solid retail deposit growth due both to market trends and the relatively high deposit rates offered by the bank. At the same time, UBB's loan book contracted considerably and funding from NBG fell, so that the loans/deposits ratio stood at 123% at end-March 2012 (end-2009:159%).

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