RPT-Fitch Rates Development Bank of the Republic of Belarus 'B-'/Stable

Wed Feb 5, 2014 4:11am EST

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Feb 5 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Development Bank of the Republic of Belarus (DBRB) Long-term foreign and local currency Issuer Default Ratings (IDR) of 'B-' with Stable Outlook. A full list of rating actions is provided at the end of this comment.

KEY RATING DRIVERS

DBRB's ratings are underpinned by a high propensity of support from the government of the Republic of Belarus, if needed. However, Fitch's view of the fairly weak credit profile of the sovereign, and hence its ability to provide assistance, mean that support cannot be relied upon.

Fitch's view of the high propensity to support is based on the bank's 95% ownership by the Council of Ministers of the Republic of Belarus, DBRB's legally defined policy role of lending under state-directed programmes, and its close association with the Belarusian authorities. DBRB's Board of Directors is chaired by the Belarusian Prime Minister and includes high-ranked officials, and major decisions affecting the bank are taken at governmental level. The dominant share of local currency funding (mostly bonds) in DBRB's liabilities means that the authorities' ability to provide support should not be heavily dependent on the sovereign's external finances.

DBRB's loan book is dominated by large and fairly high-risk loans issued under government programmes and taken over from other state banks as part of the government's strategy aimed at consolidating such loans within DBRB. Most of these loans were issued at low rates to state-owned companies (92% of the largest 25 exposures at DBRB), while the bank gets compensated by the Ministry of Finance for the interest expense it pays on market-rate funding.

Reported NPLs (overdue over 90 days) and restructured loans at end-1H13 were high at 12% and 4%, respectively, of gross loans, but both were fully covered by reserves. DBRB's portfolio growth plans will be defined by government directives on new lending under government programmes (earmarked at about BYR4trn for 2014) and on loan transfers from state banks (BYR1.15trn planned in 2014).

As a development bank DBRB is exempt from regulatory capital requirements. The bank's total capital adequacy ratio calculated in line with statutory requirements was 30% at end-1H13 (22% as per Basel standards). This ratio increased further to 38% at end-2013 following a BUR2.8trn capital injection. The sizable capital buffers meant that the bank could have reserved up to half of the loan book at end-2013 before breaching the internal capital adequacy limit of 10% set by the Board of Directors.

DBRB's liquidity is reasonable at present, while refinancing and foreign currency risks are limited. Liquid assets were moderate at approximately BYR1.4trn or 2% of assets at end-3Q13; however, DBRB is not allowed to attract customer deposits and its funding is mainly wholesale borrowings, most of which are long-term local bonds (82% of liabilities) held by the National Bank of the Republic of Belarus and state-owned banks. The remainder are deposits attracted from the Ministry of Finance. Liabilities maturing in 2014 represented a moderate BYR670bn or 3% of end-3Q13 liabilities.

RATING SENSITIVITIES

The ratings are likely to move in tandem with Fitch's assessment of the sovereign credit profile.

The rating actions are as follows:

Long-term Foreign and Local Currency IDRs: assigned at 'B-'; Outlook Stable

Short-term Foreign Currency IDR assigned at 'B'

Support Rating assigned at '5'

Support Rating Floor assigned at 'B-'

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