Moody's review of the bank's ratings is largely based on the fact that the rating agency lacks access to factually verifiable financial information, as Agrobank has not yet reported its 2010 annual results under IFRS.

According to Moody's, the review reflects uncertainty over Agrobank's asset quality, profitability and capital adequacy, as the bank postponed the publication of IFRS financial statements for 2010. Although the bank reports on regular basis under local GAAP, the rating agency notes that such financial statements lack transparency, while some accounting principles implemented under local financial reporting standards do not enforce the "substance over form" concept.

Additionally, Agrobank's total capital adequacy ratio was reported at 9.7% as of 1 July 2011, which is below the regulatory minimum of 10%. The capital adequacy was pressured by rapid loan growth in 1H 2011, as the bank reported loan book growth in excess of 40% (under local GAAP). At the same time, further shortage of capital is aggravated by currently low provisioning coverage which the bank has reported to be 1.2% of the loan portfolio under local GAAP as of 1 July 2011.

Moody's explains that Agrobank's BFSR and deposit ratings could be downgraded as a result of any of the following: (i) if the bank fails to publish an audited IFRS financial statement for 2010 within the next three months, or (ii) if the audited IFRS confirms the rating agency's current concerns as regards the deterioration of the bank's asset quality and/or diminished capital levels resulting from the observed rapid portfolio growth.

As a point of reference, Agrobank's GLC deposit ratings are underpinned by Moody's assessment of a high probability of systemic support to the bank in case of distress. This assessment takes into account the 67% state ownership of the bank, its material share of the country's total banking system, which varies from 7% to 10% of corporate loans and deposits combined, as well as the bank's special mandate in servicing the socially important agriculture sector. As a result, in accordance with Moody's Join Default Analysis (JDA) methodology for banks, Agrobank's deposit rating of Ba3 benefits from a two-notch uplift from its own B2 standalone credit strength (mapped from the E+ BFSR).

Moody's will monitor measures that will be introduced to support the bank's capital position which will be taken into consideration in concluding the review.