Fitch Upgrades 2 ProCredit Banks; Affirms 2 Others

Tue Jul 1, 2014 9:52am EDT

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(The following statement was released by the rating agency) LONDON/MOSCOW, July 01 (Fitch) Fitch Ratings has upgraded ProCredit Bank Macedonia's (PCBM) Long-term Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+' and ProCredit Bank Kosovo's (PCBK) Long-term IDR to 'B+' from 'B'. At the same, Fitch has affirmed the IDRs of two other subsidiary banks of ProCredit Holding AG& Co.KGaA (PCH) in Serbia (PCBS) and Bosnia (PCBiH). A full list of rating actions is provided at the end of this rating action commentary. KEY RATING DRIVERS - IDRS and SUPPORT RATINGS The IDRs and Support Ratings of PCH's bank subsidiaries in Kosovo, Serbia, Bosnia and Macedonia are driven by potential support from their parent, PCH. The support considerations take into account the majority ownership, common branding, strong parental integration and a track record of timely capital and liquidity support to group banks from PCH. However, the extent to which such support can be factored into those entities' ratings (with the exception of PCBM which is now rated one notch below PCH) is constrained by Fitch's assessment of risks relating to their respective countries. The upgrade of PCBM's IDRs follows the upgrade of PCH's Long-term IDR to 'BBB' (see 'Fitch Upgrades ProCredit Holding and ProCredit Banks in Bulgaria and Romania', dated 24 June 2013, available at www.fitchratings.com). The upgrade of PCBK's IDRs to 'B+' reflects changes in Fitch's perception of the risks relating to Kosovo. PCBS's Long-term foreign-currency IDR is constrained by Serbia's Country Ceiling of 'B+', while PCBiH's Long-term foreign-currency IDR reflects Fitch's assessment of country risks in Bosnia. The one notch uplift of the local currency IDR above the Country Ceiling, in the case of PCBS, and above the bank's foreign currency IDR, in the case of PCBiH, reflects the strength of shareholder support. RATING SENSITIVITIES - IDRS and SUPPORT RATINGS Changes in Fitch's perception of risks relating to Kosovo or Bosnia in either direction could affect PCBK's and PCBiH's IDRs and Support Ratings. Movements in Serbia's sovereign rating, accompanied by a change in the Country Ceiling, are likely to affect PCBS's IDRs. PCBM's IDRs are at the level of Macedonia's Country Ceiling (BBB-). Both the bank's IDRs and Support Rating are therefore sensitive to a downgrade of the Country Ceiling. Upgrade of the Country Ceiling would not trigger an upgrade of PCBM's IDRs in view of PCH's 'BBB' Long-term IDR. A downgrade of PCH's ratings or a weakening, in Fitch's view, of the parental support available to the bank would also result in a downgrade of PCBM's IDRs and Support ratings, although neither is expected by Fitch. KEY RATING DRIVERS - VRs of PCBK, PCBS and PCBiH The VRs of PCBK, PCBS and PCBiH reflect their challenging operating environments, which leave the banks' performance, asset quality and potentially also capitalisation vulnerable to local market shocks. The VRs of PCBS and PCBiH also consider a high level of foreign currency lending, mostly to unhedged borrowers, exposing the banks to additional credit risks in the event of a potential sharp depreciation of their respective local currencies (not currently Fitch's base-case expectation). However, this is balanced by generally satisfactory asset quality and already strong reserve coverage of existing overdue loans (although moderate in the case of PCBiH). Asset quality is underpinned by a good level of diversification by sector and by borrower, and by the group's centralised risk management and control framework. As a result, the banks' asset quality typically outperforms that of their domestic peers. In addition, the banks' liquidity positions are comfortable. PCBK's deposit base is a rating strength, with the bank almost entirely deposit-funded, and in the case of PCBS and PCBiH, refinancing risk is limited, due to the presence of International Financial Institutions (IFI) as the main providers of long-term funding. PCBK's and PCBS's capital positions are additionally supported by the banks' strong internal capital generation capacity. However, PCBiH's 'b-' VR also reflects franchise limitations and the bank's smaller scale, which results in lower profitability and hence weaker internal capital generation. As a result, the bank has largely been reliant on regular capital support from PCH to date. PCBM's VR is not affected by today's rating actions. RATING SENSITIVITIES - VRs of PCBK, PCBS and PCBiH The banks' VRs could be downgraded in the event of a material worsening of the operating environment and a sharp deterioration in asset quality that puts pressure on profitability and capitalisation. Upside potential is currently limited for the VRs of PCBK and PCBS given the challenges of their local operating environments and the ensuing limitations on their long-term prospects. Positive pressure on PCBiH's VR would depend on the bank building a track record in generating stronger operating revenues and improving efficiency as well as strengthening its franchise. The rating actions are as follows: PCBK Long-term foreign currency IDR upgraded to 'B+' from 'B'; Outlook Stable Short-term foreign currency IDR affirmed at 'B' Viability Rating affirmed at 'b' Support Rating affirmed at '4' PCBM Long-term foreign currency IDR upgraded to 'BBB-' from 'BB+'; Outlook Stable Short-term foreign currency IDR upgraded to 'F3' from 'B' Long-term local currency IDR upgraded to 'BBB-' from 'BB+' Short-term local currency IDR upgraded to 'F3' from 'B' Viability Rating: 'b+', not affected Support Rating: upgraded to '2' from '3' PCBS 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' PCBiH 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 'B+'; Outlook Stable Short-term local currency IDR affirmed at 'B' Viability Rating affirmed at 'b-' Support Rating affirmed at '4' Contact: Primary Analyst Lindsey Liddell Director +44 20 3530 1008 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Eris Huang Analyst +44 20 3530 1493 Committee Chairperson Olga Ignatieva Senior Director +7 495 956 6906 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Elaine.Bailey@fitchratings.com; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating 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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