TEXT-Fitch affirms seven Belarusian banks

Fri Dec 14, 2012 6:10am EST

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(The following statement was released by the rating agency)

Dec 14 - Fitch Ratings has affirmed seven Belarusian banks' Long-term Issuer Default Ratings (IDRs). Belarusbank (BBK), Belinvestbank (BIB), BPS-Sberbank (BPS), Belgazprombank (BGPB) and Bank BelVEB OJSC (BelVEB), VTB Bank (Belarus) CJSC (VTBB) have been affirmed at 'B-' and the Outlooks have been revised to Stable from Negative. CJSC BTA Bank (BTAB) has been affirmed at 'CCC'.

VTBB and BTAB's ratings have been affirmed and withdrawn as the banks have chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, the agency will no longer provide ratings or analytical coverage of VTBB and BTAB. A full list of rating actions is at the end of this comment.

RATING ACTION RATIONALE

The revision of the Outlooks to Stable from Negative reflects the stabilisation of the Belarus banking system and the broader economy in 2012. This has somewhat reduced downside risks for banks' stand-alone profiles and the sovereign's creditworthiness, lowering the probability of downgrades of banks' Viability Ratings and IDRs. At the same time, macroeconomic stability is rather fragile and the credit profile of the Belarus sovereign remains weak, meaning that renewed downward pressure on banks' ratings in the near to medium term cannot be ruled out.

The Belarusian economy has recovered somewhat after the severe stress of 2011 which resulted in an almost threefold devaluation of the BYR and 109% inflation. During 2012, the BYR has been stable and inflation fell to 18% in 10M12, enabling the National Bank of Belarus (NBRB) to reduce the refinancing rate to 30% from a peak of 45%. Foreign exchange reserves were flat at around USD8bn.

However, still rapid credit growth in 2012 (28% to end-Q312) and real wage increases have fuelled domestic demand, resulting in the trade balance turning negative in H212 after recording a surplus in H112. This, combined with sizable foreign debt repayments in 2013, in particular to the IMF, could put renewed pressure on the BYR. Furthermore, and despite the credit expansion, GDP growth slowed to 2.2% yoy in 10M12 from 5.3% in 2011. The combination of weak external finances, slowing growth and still high interest rates indicate bleak prospects for the economy in 2013.

RATING DRIVERS: IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS

The Long-term IDRs of BBK and BIB are underpinned by Fitch's view of the high propensity of the Belarusian authorities to support the banks, in case of need. Fitch's view on support for BBK is driven by the bank's state ownership, high systemic importance, its policy role and the track record of support to date. BBK accounts for a large 40% and 41%, respectively, of system assets and deposits, and its loan book primarily comprises lending under state programmes (72% of the portfolio at end-3Q12) which are ultimately funded by the government. In Q411, BBK received a substantial BYR13trn (USD1.5bn) equity injection from the government.

Fitch's view on potential support for BIB is driven by its state ownership and significant systemic importance (market shares of 6% of both assets and deposits). However, the bank has somewhat less of a policy role (programme loans accounted for 26% of the portfolio at end-Q312) and has received only a small equity injection in early 2012. That said, its Fitch Core Capital was a reasonable 15% at end-3Q12, and an equity injection is planned for 2013.

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