Reuters logo
Fitch Affirms 5 Ukrainian Foreign-owned Banks
June 9, 2017 / 2:13 PM / in 4 months

Fitch Affirms 5 Ukrainian Foreign-owned Banks

(The following statement was released by the rating agency) MOSCOW, June 09 (Fitch) Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Ratings (IDRs) of PJSC Credit Agricole Bank (CAB), ProCredit Bank (Ukraine) (PCBU), PJSCCB PRAVEX-BANK (Pravex), PJSC Alfa-Bank (ABU) and Ukrsotsbank (Ukrsots) at 'B-' with Stable Outlooks. Fitch has also upgraded the Viability Ratings (VRs) of CAB to 'b' from 'b-', PCBU to 'b-' from 'ccc', Pravex to 'b-' from 'cc' and Ukrsots to 'ccc' from 'cc'. ABU's VR has been affirmed at 'ccc'. A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND SENIOR DEBT All five banks' IDRs and National Ratings factor in the likelihood of support they may receive from their foreign shareholders. The affirmations of CAB's, PCBU's and Pravex's 'B-' Long-Term Foreign Currency IDRs reflect the constraint of Ukraine's Country Ceiling of 'B-', which captures transfer and convertibility risks and limits the extent to which support from the majority foreign shareholders of these banks can be factored into the ratings. The Stable Outlooks on the Long-Term Foreign Currency IDRs of CAB and PCBU are in line with that on the Ukrainian sovereign. The revision of the Outlook on Pravex's Long-Term Foreign Currency IDR to Stable from Negative reflects Fitch's view that the rating at this level is now also underpinned by the bank's VR, following its upgrade to 'b-' from 'cc'. The Long-Term Local Currency IDRs of CAB, PCBU and Pravex at 'B' also take into account country risks. The Stable Outlooks on the Long-Term Local Currency IDRs of CAB and PCBU reflect Fitch's view of the likely evolution of these risks. The Negative Outlook on Pravex's Long-Term Local Currency IDR reflects the potential for the bank to be sold and hence for potential shareholder support to be reduced, in which case this rating would likely be downgraded to the level of the bank's VR. CAB is fully owned by Credit Agricole S.A. (A+/Stable). PCBU is controlled (94% of voting stock) by Germany's ProCredit Holding AG & Co. KGaA (BBB/Stable). Pravex is fully owned by Intesa Sanpaolo (BBB/Stable), but has been managed as a non-core asset from 2014 when it was put up for sale. The affirmation of ABU's and Ukrsots' Long-Term IDRs, National Ratings and ABU's senior debt ratings reflects Fitch's unchanged view of the potential support both banks may receive from other assets of Alfa Group. However, the probability of support is limited due to the banks' indirect relationship with other group assets and the mixed track record of support (for ABU) from the shareholders. ABU and Ukrsots are both ultimately owned by ABH Holdings S.A. (ABHH), which is part of Alfa Group's financial business and is the owner of several other banking subsidiaries, mostly in the CIS, including Russia-based OJSC Alfa-Bank (BB+/Stable). In October 2016, Ukrsots' former owner, UniCredit S.p.A. (UniCredit, BBB/Stable), transferred its 99.9% share in Ukrsots to ABHH in exchange for 9.9% of ABHH's shares. VRs The upgrades of CAB's, PCBU's, Pravex's and Ukrsots' VRs reflect reduced pressures on asset quality mostly due to the more stable Ukrainian economy, the banks' modest growth/deleveraging (except for PCBU) and generally moderate risk appetites since the downturn in Ukraine's economy in 2014. The VR upgrades also consider improved loss absorption capacity following recent bank recapitalisations (Pravex, Ukrsots, PCBU) and/or continued resilience in operating performance (CAB, PCBU) that allowed for stronger coverage of problem assets and more comfortable capital cushions. The VRs of all five banks remain constrained by the challenging operating environment and/or still large stocks of legacy impaired loans (in particular at Pravex, Ukrsots and ABU), which pressure performance. We do not expect material improvements in asset quality metrics in the near term as Ukraine's economic recovery is only moderate; Fitch expects GDP growth of 2% in 2017 and 3% in 2018. The VRs of all five banks also reflect stabilisation of funding profiles, driven by decreased hryvnia volatility, and comfortable liquidity cushions accumulated in a period of low credit growth. Non-deposit funding is limited at these banks. CAB's 'b' VR reflects the bank's stronger standalone creditworthiness than peers'. It is supported by the bank's more balanced business model, benefitting from access to cheap (by market standards) and stable client funding, and a focus on lower-risk lending segments (multinational clients, better performing agro producers, car loans in retail) resulting in more resilient financial metrics. CAB's non-performing loans (NPLs, loans more than 90 days overdue) stood at 14.5% of loans at end-2016, and performing restructured loans were at 10.5% (end-2015: 15% and 12%, respectively). Impaired loans (NPLs plus restructured) were comfortably (74%) covered by impairment reserves; however, the unreserved portion of these amounted to a significant 50% of Fitch Core Capital (FCC). Loss absorption capacity is underpinned by solid pre-impairment profitability (equal to 10% of average gross loans for 2016), and a capital buffer is also available to absorb additional credit losses (FCC ratio of 12.7%). CAB reported a solid 36% return on average equity (ROAE) in 2016 (2015: 27%). PCBU's 'b-' VR factors in the risks associated with a largely unseasoned loan book following the bank's rapid growth in the core SME segment (by 52% in 2016 and 32% in 2015, adjusted for FX effects). Loans, however, have been originated under reasonably strict underwriting criteria with limited inflows of new problem loans to date. PCBU's NPLs and restructured (classified as standard, watch-list and impaired) loans stood at 2.9% and 7.6%, respectively, at end-2016, down from 5.6% and 14.4% at end-2015. Impairment reserves provided moderate (62%) cover for NPLs and restructured loans. The unreserved portion of these moderated to 28% of FCC at end-2016 from 129% at end-2015 following an equity injection in 2016, which also caused the FCC ratio to increase to 14% from 7.3%. Loss absorption capacity is underpinned by reasonable pre-impairment profitability (equal to 6% of average loans in 2016), net of unpaid accruals and non-core revenues. PCBU reported a solid 33% ROAE in 2016 (2015: 18%). Pravex's 'b-' VR reflects progress in the clean-up of the bank's balance sheet. NPLs decreased to 25% of loans at end-1Q17 from 72% at end-2015 after write-offs, and the remaining NPLs were fully covered by specific reserves. Restructured loans were a moderate 6% of loans at end-2016 (or 18% of FCC) and weakly provisioned. Apart from loans (a low 18% of the balance sheet at end-1Q17), other assets were of moderate- to low risk, and mostly liquid assets (cash and equivalents and short-term investments into National Bank of Ukraine securities) which were equal to around 86% of customer deposits. Pravex's solid capital buffer (FCC ratio of 22% at end-2016) should be seen in the context of the bank's still weak operational performance (annualised pre-impairment loss amounted to 18% of FCC in 1Q17), constrained by a low share of high-earning assets and a still sizable cost base. ABU's and Ukrsots' 'ccc' VRs factor in both banks' high levels of NPLs (end-2016: ABU: 35% of loans, 74%-covered by reserves; Ukrsots: 75% and 82%, respectively) and restructured loans (ABU: 33%; Ukrsots: 15%). The unreserved portions of these problem exposures were high at both banks (ABU: 5x FCC; Ukrsots: 2x FCC) and the FCC ratio was low at ABU (7.9%), but stronger at Ukrsots (25.2%) supported by the equity contribution provided by UniCredit before the bank's sale in 2016. ABU also expects to receive moderate capital support of USD60 million in 2017 (equal to 0.6x FCC or 5% of risk-weighted assets at end-2016). Both banks were deeply loss-making in 2016 (ROAE of -170% at ABU and -131% at Ukrsots, which reported pre-impairment losses in 2015-2016), due to a large share of weakly performing assets, low margins on the restructured portfolio (Ukrsots) and high provisioning needs at both banks. Performance prospects will depend on the ability to generate new healthy business (currently less evident for Ukrsots) and avoid new credit losses. Liquidity is comfortable at both banks and managed jointly suggesting some fungibility between the banks' balance sheets. The buffers of liquid assets (calculated as liquid assets net of near-term wholesale funding repayments) were equal to 17% of customer deposits at ABU and 33% at Ukrsots at end-4M17. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND SENIOR DEBT The IDRs of CAB, PCBU and Pravex could be upgraded if Ukraine's sovereign ratings are upgraded and the Country Ceiling revised upwards, and downgraded in case of a sovereign downgrade. An upgrade of ABU's and Ukrsots' IDRs and Support Ratings would require a strengthening of the support track record for both banks. A significant weakening of the ability and/or propensity of shareholders to provide support could also result in downgrades. A sale of Pravex to a weaker investor would result in a downgrade of its support-driven Long-Term Local Currency IDR and National Long-Term Rating. VRs The VRs could be downgraded if additional loan impairment recognition undermines capital positions without sufficient support being made available. Upside for banks' VRs is currently limited. The rating actions are as follows: CAB: Long-Term Foreign Currency IDR: affirmed at 'B-', Outlook Stable Long-Term Local Currency IDR: affirmed at 'B', Outlook Stable Short-Term Foreign Currency IDR: affirmed at 'B' Short-Term Local Currency IDR: affirmed at 'B' Support Rating: affirmed at '5' Viability Rating: upgraded to 'b' from 'b-' National Long-Term Rating: affirmed at 'AAA(ukr)'; Outlook Stable ProCredit Bank (Ukraine): Long-Term Foreign Currency IDR: affirmed at 'B-', Outlook Stable Long-Term Local Currency IDR: affirmed at 'B', Outlook Stable Short-Term Foreign Currency IDR: affirmed at 'B' Short-Term Local Currency IDR: affirmed at 'B' Support Rating: affirmed at '5' Viability Rating: upgraded to 'b-' from 'ccc' National Long-Term Rating: affirmed at 'AAA(ukr)'; Outlook Stable Pravex: Long-Term Foreign Currency IDR: affirmed at 'B-', Outlook revised to Stable from Negative Long-Term Local Currency IDR: affirmed at 'B', Outlook Negative Short-Term Foreign Currency IDR: affirmed at 'B' Support Rating: affirmed at '5' Viability Rating: upgraded to 'b-' from 'cc' National Long-Term Rating: affirmed at 'AA+(ukr)', Outlook Negative PJSC Alfa-Bank: Long-Term Foreign Currency IDR: affirmed at 'B-', Outlook Stable Long-Term Local Currency IDR: affirmed at 'B-', Outlook Stable Senior unsecured local currency debt: affirmed at 'B-'/'RR4'/, 'AA(ukr)' Senior unsecured local currency market linked securities: affirmed at 'B-(emr)'/'RR4'; 'AA(ukr)(emr)' Short-Term Foreign Currency IDR: affirmed at 'B' Support Rating: affirmed at '5' Viability Rating: affirmed at 'ccc' National Long-Term Rating: affirmed at 'AA(ukr)'; Outlook Stable Ukrsotsbank: Long-Term Foreign Currency IDR: affirmed at 'B-', Outlook Stable Long-Term Local Currency IDR: affirmed at 'B-', Outlook Stable Short-Term Foreign Currency IDR: affirmed at 'B' Support Rating: affirmed at '5' Viability Rating: upgraded to 'ccc' from 'cc' National Long-Term Rating: affirmed at 'AA(ukr)'; Outlook Stable Contact: Primary Analysts Olga Ignatieva (CAB, ABU, Ukrsots) Senior Director +7 495 956 6906 Fitch Ratings Moscow Valovaya str., 26 Moscow Anna Erachina (Pravex, PCBU) Associate Director +7 495 956 7063 Fitch Ratings Moscow Valovaya str., 26 Moscow Secondary Analysts Sergey Popov (ABU, Ukrsots, Pravex, PCBU) Associate Director +7 495 956 9981 Anna Erachina (CAB) Associate Director +7 495 956 7063 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; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below