Rating agency Moody's Investors Service has downgraded the bank financial strength rating (BFSR) of Piraeus Bank Bulgaria to E+ from D-.

Its long-term deposit rating has been decreased by three notches to Ba3 from Baa3, while its short-term deposit ratings to NP from Prime-3.

The outlook on all ratings is negative.

The downgrade follows Moody's earlier BFSR downgrade of PBB's Greek parent bank, Piraeus Bank SA, to E+ (negative outlook) from D+.

The parent bank's E+ BFSR now translates into a BaselineCredit Assessment (BCA) of B1, which serves as a reference point with which to impute bank rating uplift as a result of possible parental support.

The rating agency notes that the downgrade of PBB's stand alone ratings toE+/B1, the same level as those of its parent bank, reflects the high level of funding dependence on, and correlation with, the parent bank.

Although PBB continues to generate adequate profitability – despite reduced growth in business volumes during Q1 2010 -- and has sufficient capital buffer to absorb future credit losses, its BFSR is affected by the reduced ability of its parent bank to provide additional funding support, as indicated by Piraeus Bank SA's BCA of B1, the agency said.

Moody's believes that there is still a high probability and strong willingness of parental support to PBB based on the strategic importance of the Bulgarian operations to Piraeus Bank Group and on PBB's small size compared to the group's balance sheet.

However, given the lowered level of the parent bank's own standalone rating, PBB's ratings can no longer benefit from rating uplift stemming from parental support considerations.

Nevertheless, PBB's long- and short- term local and foreign currency deposit ratings of Ba3/NP, respectively, receive one notch of uplift from the bank's BCA as a result of Moody's assessment of systemic support.

As the ratings are no longer constrained by the country ceilings, any future movement in PBB's BFSR would therefore prompt a movement in the bank's local and foreign currency deposit rating.

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