Moody’s placed the A1 long term rating of Austria’s Erste Group Bank on review for downgrade on Friday after the bank reported an unexpected third quarter loss.

A one notch downgrade of the long term debt and deposit ratings was seen as the most likely outcome of the review by the rating agency, which followed Moody’s putting Erste’s bank financial strength rating on review for downgrade. The BFSR is on review because of the bank’s report of a major loss that partly stems from previously undisclosed credit default swap (CDS) exposures of Eu5.2bn.

“Erste also announced the harmonisation of IT tools requiring the restatement of certain income recognition accounting,” said Moody’s, “raising questions about the uniform application of appropriate risk management tools as well as financial transparency on a group-wide basis.”

The rating agency said the CDS exposures and the IT tool revamping may mean that earlier qualitative assumptions that Moody’s had made are no longer consistent with the C- BFSR and the Baa1 standalone credit assessment. The review will focus on Erste’s risk management, internal controls, and financial transparency as well as the risk adjusted profit generating capacity of its business model.

A lower mapping of the standalone credit strength from Baa1 to Baa2 is likely, said the rating agency, adding that a move of the BFSR below the C- range cannot be ruled out entirely. This is likely to lead to a one notch downgrade of the long term rating.

Erste’s long term ratings benefit from “very high supportive assumptions as a systemically relevant bank in Austria”. This results in three notches of uplift from the bank’s Baa1 standalone credit strength. Moody’s said the long term rating is expected to move in tandem with Erste’s standalone risk assessment.

The long term rating could come under downward pressure in case of a weakening in its intrinsic financial strength, or because of adverse changes in the systemic support assumptions factored into Erste’s rating. Moody’s added that it did not consider this likely.

Mortgage covered bonds and public sector covered bonds issued by Erste are rated Aaa by Moody’s.