TEXT - Fitch affirms ProCredit Banks in Albania and Macedonia

Wed Jan 30, 2013 11:40am EST

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(The following statement was released by the rating agency)
    Jan 30 - Fitch Ratings has affirmed the Long-Term foreign currency Issuer
Default Ratings (IDRs) of ProCredit Banks in Albania (PCBA) and Macedonia (PCBM)
at 'B+' and 'BB+' respectively, both with Stable Outlooks. A full list of rating
actions is at the end of this commentary.  

RATING DRIVERS AND SENSITIVITIES: IDR AND SUPPORT RATINGS

The banks' Long-Term IDRs and Support Ratings are driven by potential support 
from their parent, ProCredit Holding AG & Co. KGaA (PCH, 'BBB-'/Stable). In 
turn, PCH's ratings are based on Fitch's view of the support it could expect to 
receive from its core shareholders, if needed - particularly from its 
international financial institution (IFI) shareholders. 

The potential support for PCBA, and hence its IDRs and Support Rating, are 
constrained by Fitch's assessment of transfer and convertibility risks in 
Albania. Consequently, its ratings could be upgraded or downgraded if Fitch's 
view of these risks changes.

PCBM's IDRs and Support Ratings are also sensitive to Macedonia's sovereign 
rating ('BB+'/Stable). Downward movement in the sovereign rating would result in
a lowering of PCBM's Long-Term IDRs. However, upward movement in the sovereign 
rating would not result in an upgrade of PCBM's IDRs, in view of PCH's ratings.

A weakening in Fitch's view of the support available to PCBM from PCH would also
result in a change to PCBM's IDRs and potentially its Support Rating. However, 
this is not expected by Fitch at present.

RATING DRIVERS AND SENSITIVITIES: VIABILITY RATINGS.

PCBA's 'b' VR considers the bank's difficult operating environment and its 
fragile financial performance in 2012 given a sharp increase in loan impairment 
charges, which reflect both a one-off change in the bank's provisioning policy 
and a sharp worsening in the bank's asset quality metrics (loans in arrears over
30 days were 8.5% of total gross loans at end-2012; up from 3.7% at end-2011) 
following poor performance of some of its larger SME loans. Despite this sharp 
increase however, the bank's asset quality outperforms the sector average. The 
VR also reflects a stable retail funding base, comfortable liquidity, and solid 
corporate governance and risk management systems. Fitch views the bank's 
capitalisation as modest (Fitch Core Capital/weighted risks of 12.6% at 
end-Q312), given the challenging operating environment and the bank's fragile 
internal capital generation.

PCBA's VR could be downgraded if continued asset quality deterioration and loss 
of business volumes led to operating losses, thereby putting further pressure on
the bank's tight capital levels. A sustainable and material improvement in 
profitability and asset quality, as well as gains in economies of scale, could 
lead to an upgrade of the VR. A more benign economic outlook would also be 
positive for the bank's VR.

PCBM's VR reflects a muted growth environment in the context of a slowdown in 
the Macedonian economy; modest, albeit strengthening, profitability and solid 
asset quality metrics (loans in arrears over 30 days of 2.8% at end-Q312) which 
outperform the sector average. It also reflects solid corporate governance and 
risk management. However, PCBM has a relatively high loan/deposit ratio (116% at
end-Q312), as the bank continues to rely on funding from IFIs. Fitch views the 
bank's capitalisation as moderate (Fitch Core Capital/weighted risks of 11.6% at
end-Q312), given the operating environment and the bank's limited internal 
capital generation. 

The bank's VR could be downgraded in the event of a sharp deterioration in asset
quality leading to operating losses and pressure on the bank's moderate capital 
levels. Improvements in the operating environment, sustainable gains in 
profitability and economies of scale could lead to an upgrade of the VR.

At end-2012, PCBA was 100%-owned and PCBM 87.5%-owned by PCH. PCH is the 
Frankfurt-based holding company for the PCH Group with operations in 22 
countries (end-Q312 total assets: EUR5.7bn), primarily in Eastern Europe, Latin 
America and Africa. PCH banks focus on responsible lending to SMEs, and 
responsible banking for retail customers.

The rating actions are as follows:

PCBA

Long-term foreign currency IDR: affirmed at 'B+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: affirmed at 'BB-'; Outlook Stable
Short-term local currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '4'

PCBM
Long-term foreign currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Long-term local currency IDR: affirmed at 'BB+'; Outlook Stable
Short-term local currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '3'

 (Caryn Trokie, New York Ratings Unit)
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