Fitch Rates Ukraine's Prominvestbank 'B-'/Negative

Fri Dec 20, 2013 10:43am EST

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(The following statement was released by the rating agency) MOSCOW, December 20 (Fitch) Fitch Ratings has assigned Ukraine-based 'Joint Stock Commercial Industrial & Investment Bank' (PSC Prominvestbank, PIB) a Long-term foreign currency Issuer Default Rating (IDR) of 'B-' with a Negative Outlook. A full list of rating actions is provided at the end of this comment. KEY RATING DRIVERS - IDRS, NATIONAL RATING, SENIOR DEBT AND SUPPORT RATING PIB's IDRs, National, Support and senior debt ratings reflect Fitch's view of limited probability of support the bank may receive, if needed, from its 98.6%-owner, Russian state-owned Vnesheconombank (VEB, BBB/Stable). While the agency views the propensity to support is strong, actual support is constrained by country risks, which have heightened in recent months. In addition to ownership, Fitch's view of VEB's willingness to support takes into account the track record of funding and capital support; PIB's integration with the parent group; and the absence of any near-term plans to sell the bank. The track record of parental support includes equity injections and a subordinated loan provided since 2009, and USD1.6bn of non-equity funding, scheduled to mature in 2014-2018. VEB plans a further equity injection in 2014. PIB's Long-term foreign-currency IDR is currently constrained by Ukraine's Country Ceiling (B-), which reflects heightened risks of transfer and convertibility restrictions. Such restrictions could limit the extent to which support from VEB could be utilised to service PIB's obligations. The bank's 'B' Long-term local currency IDR also takes into account Ukrainian country risks. The Negative Outlook on the bank's IDRs reflects the potential for a further downgrade of Ukraine's Country Ceiling given the Negative Outlook on Ukraine's ratings. RATING SENSITIVITIES - IDRS, NATIONAL LONG-TERM RATING, SENIOR DEBT The Long-term IDRs and senior debt ratings could be downgraded if Ukraine's Country Ceiling is downgraded as a result of a sovereign downgrade. A revision of the sovereign Outlook to Stable would help the ratings to stabilise at their current levels. Fitch's views a disposal of the bank as unlikely in the short- to medium-term. However, a change in the agency's view on the propensity of VEB to provide support to its Ukrainian subsidiary could lead to downward pressure on PIB's ratings. The Stable Outlook on the bank's National Rating reflects Fitch's view that the bank's creditworthiness relative to other Ukrainian issuers is unlikely to change significantly as a result of the potential sovereign downgrade. KEY RATING DRIVERS - VR PIB's 'ccc' Viability Rating (VR) reflects the bank's currently weak asset quality and potential downside risks stemming from sizeable restructured exposures, large industry/borrower concentrations, high foreign-currency lending (58% of gross loans at end-10M13), as well as pressure on capital due to poor profitability driven by large loan impairments. In Fitch's view PIB, like other banks in Ukraine, has limited resilience to risks from the deteriorating sovereign profile and operating environment. The bank's asset quality, capital and liquidity positions are likely to be highly sensitive to the performance of the economy and any marked depreciation of the Ukrainian hryvna. At the same time, the VR considers PIB's comfortable liquidity position, also underpinned by the availability of parent funding (31% of end-1H13 liabilities) and by positive deposit trends so far, limited direct exposure to FX-risk (through an open currency position), adequate reserve coverage of existing non-performing loans and future re-capitalisation plans. Non-performing loans (NPLs; more than 90 days overdue) accounted for 15% of gross loans at end-10M13, after regular write-offs. In addition, around 18% of loans were rolled-over/restructured, most of which would have been in default if not for restructuring. Fitch's review of the major exposures (loans to the 25 largest borrowers, accounting for around 65% of gross loans at end-1H13) additionally revealed that some of these (not classified as either NPLs or restructured) were fairly high-risk, being long-term exposures with non-amortising principal, provided to borrowers operating in highly vulnerable economic segments such as metallurgy and/or construction. In this context, PIB's loss absorption capacity is modest. Fitch estimates that PIB could have increased its statutory loan impairment reserves to 19% of loans at end-3Q13 from the actual level of 15% before its regulatory capital adequacy ratio (end-3Q13: 13.2%) would fall to the regulatory minimum of 10%. Planned recapitalisation should markedly improve that bank's loss absorption capacity in 2014. However, this could prove insufficient should asset quality continue to deteriorate. Internal capital generation has been negative since 2009 given modest pre-impairment profitability and high loan loss provisions, while near-term profitability prospects are further constrained by a weak economy and still volatile borrower performance in Ukraine. PIB's liquidity position is adequate with a solid level of highly liquid assets (cash, non-restricted short-term bank placements and unencumbered repoable securities) sufficient to cover 63% of customer deposits at end-11M13. RATING SENSITIVITIES - VR The VR could be downgraded if additional loan impairment recognition undermines the bank's capital position. Stabilisation of asset quality and completion of the bank's recapitalisation could result in an upgrade of the VR. Reduced portfolio concentrations and improved profitability in a more stable operating environment would also be beneficial for the bank's credit profile. The rating actions are as follows: Long-term Foreign Currency IDR assigned at 'B-'; Outlook Negative Short-term Foreign Currency IDR assigned at 'B' Long-term Local Currency IDR assigned at 'B'; Outlook Negative National Long-term Rating assigned at 'AAA(ukr)'; Outlook Stable Viability Rating assigned at 'ccc' Support Rating assigned at '5' Senior unsecured local currency debt rating assigned at 'B'/'RR4'/'AAA(ukr)' Contact: Primary Analyst Olga Ignatieva Director +7 495 956 6906 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Secondary Analyst Sergey Popov Associate Director +7 495 956 9981 Committee Chairperson Alexander Danilov Senior Director +7 495 956 2408 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, 'Rating FI Subsidiaries and Holding companies' dated 10 August 2012, 'Evaluating Corporate Governance', dated 12 December 2012, 'Recovery Ratings for Financial Institutions', dated 19 August 2013, 'National Ratings Criteria', dated 19 January 2011 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Evaluating Corporate Governance here Recovery Ratings for Financial Institutions here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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petryshakm wrote:
Facebook page https://www.facebook.com/emaidanua. About Ukraine and Euromaidan in English there

Dec 21, 2013 11:34am EST  --  Report as abuse
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