Standard & Poor's rating agency announced it will keep the United Bulgarian Bank, majority-owned by the National Bank of Greece, on its credit watch negative.

The agency affirmed its 'B-/C' long- and short-term counterparty credit ratings on United Bulgarian Bank (UBB) to reflect the bank's 'bb' anchor, adequate business position, capital and earnings, weak risk position, below-average funding, and moderate liquidity.

"The CreditWatch status reflects our view of the potential negative effects on UBB's funding base originating from the Greek financial crisis," the agency said in a statement.

According to Standard & Poor's analysts UBB still relies on funding from NBG to a limited extent, which makes it exposed to some contagion risk. This, in turn, could destabilize UBB's deposit base and constrain its access to wholesale funding.

The rating agency voices concerns over the significant deterioration in UBB's asset quality since the onset of the Bulgarian economic crisis in 2008. Levels of nonperforming loans appear to have peaked at around 27% in mid-2011 and have remained fairly stable since then at around 28% at year-end 2011.

The agency points out that Bulgaria has made a significant economic adjustment by reducing its deficit and it anticipates that the government would have the capacity to support UBB if NBG could no longer do so.

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