June 29, 2017 / 4:12 PM / 5 months ago

Fitch Affirms 3 Belarus State-Owned Banks at 'B-'/Stable

(The following statement was released by the rating agency) MOSCOW, June 29 (Fitch) Fitch Ratings has affirmed Belarusbank's (BBK), Belinvestbank's (BIB) and Development Bank of the Republic of Belarus' (DBRB) Long-Term Issuer Default Ratings (IDRs) 'B-' with Stable Outlooks. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The three banks' Long-Term IDRs, Support Rating and Support Ratings Floors are underpinned by potential state support, in case of need, and are aligned with the sovereign rating (B-/Stable). In assessing support, Fitch considers the banks' state ownership, government control through supervisory board representation at each of the banks and the track-record of support to date. We also factor in the policy roles of BBK and DBRB as the country's largest providers of government programme lending backed by dedicated government funding, the systemic importance of BBK (market share of 41% by assets and 45% of retail deposits) and the government's subsidiary liability on DBRB's bond obligations, which, however, is as yet untested. The authorities' ability to provide support in foreign currency is limited, in Fitch's view, given the three banks' significant external funding (a combined USD2.2 billion at end-2016, including USD1.2 billion short-term debt maturing over the 12 months starting from 1 March 2017) and high dollarisation of domestic liabilities (USD7.3 billion at end-2016), largely in the form of customer deposits (bonds at DBRB). These FX liabilities are large relative to the country's international reserves of USD5.2 billion, while FX liquidity at all three banks is largely invested in the FX bonds issued by the government (long-term debt) and central bank (short-term debt). We expect the authorities to make this FX liquidity available to banks, in case of need, to avoid defaults on external borrowings. Positively, around 40% of the latter comprise facilities from Russian creditors and so are more likely to be rolled over, in our view. Liquidity shortages in local currency, if any, are likely to be covered by the central bank (BBK, BIB) or the authorities (DBRB). There were no new capital contributions from the government at the three banks in 2016 (although government-held subordinated debt at BIB was converted into equity) and none are expected in the near term. The original plan to partially privatise BBK announced in 2016 has now been postponed and the bank will focus on structural reforms as Fitch understands from management. The privatisation of BIB (100% stake) is also unlikely in the near term in Fitch's view given this bank's similar need for structural reforms and uncertainty over the country's economic prospects. We believe the authorities' propensity to support will remain unchanged for both BBK and BIB as long as the government holds a controlling stake. VRs - BBK, BIB The banks' standalone credit profiles are closely linked to that of the sovereign due to large direct exposure to the government and, more generally, the public sector. This makes the banks' asset quality dependent on the state of government finances and the ability of the authorities to support macroeconomic stability and the public sector. At end-2016, direct exposure to the sovereign (including claims on the government and the central bank) relative to Fitch Core Capital (FCC) was 3x at BBK, and 2.7x at BIB. Loans issued to public sector corporates (including those issued under government programmes) contributed a further 3.8x FCC at BBK and 2x at BIB. Credit risks remain high as the economy is sluggish and borrower performance remains constrained by generally significant leverage in the corporate sector and loan dollarisation (BBK: 60%; BIB: 70% of loans), while the share of hedged borrowers is limited. Asset quality metrics have weakened across the board during 2015-2016. We expect this trend to continue through 2017 as operating conditions remain challenging. BBK's individually impaired loans (as per IFRS accounts) grew to a high at 37% of end-2016 gross loans from 30% at end-2015, reflecting deterioration in borrowers' financial standing and/or collateral value. At the same time, loans over 90 days overdue remained low, at 1.6% of loans, helped by loan restructuring/roll-overs but also reflecting the high share of borrowers benefitting from government support (in the form of subsidies on interest payments or loan repayments under state guarantees). BIB's individually impaired loans were also high at 30% of loans at end-2016, down from 34% at end-2015, and loans over 90 days overdue were 11.6%. Asset quality ratios have benefitted from moderate balance sheet clean-ups arranged by the authorities in 2015-2016 through exchange of selected problem loans for long-term bonds issued by the Ministry of Finance, DBRB or local governments. We expect that clean-up will continue although this is likely to be a gradual process given the government's limited financial capacity for significant support. Fitch views capitalisation as modest given the banks' credit exposures and levels of impaired loans. The unreserved portion of the latter was equal to a high 1.7x FCC at BBK and 1x FCC at BIB. At end-5M17, the regulatory Tier 1 and Total capital adequacy ratios were 16.2% and 18.6%, respectively, at BBK and 10.5% and 15.2%, respectively, at BIB. These capital cushions allowed limited loss absorption capacity equal to 9% of loans at BBK and 5% at BIB, without breaching regulatory minimum levels (including buffers). Pre-impairment profit (net of accrued interest not received in cash) was a solid 5.8% of average gross loans (BBK) and 8% (BIB). However, in Fitch's view there is uncertainty about the ability of some borrowers to service loans out of their own cash flows rather than through receipt of new credit. Large loan impairment charges (equal to 65% of pre-impairment operating profit at BBK in 2016 and 98% at BIB) constrained returns on equity (ROAE) at 8.9% at BBK and 0% at BIB. Core funding is from customers (over 70% of liabilities), but with a high proportion of foreign currency accounts (67% at BBK, 62% at BIB). Deposit trends have been stable recently, limiting immediate liquidity pressure. However, liquidity management remains highly dependent on the confidence of depositors and support from the authorities. Fitch has not assigned a VR to DBRB due to the bank's special status as a development institution and its close association with the authorities. RATING SENSITIVITIES IDRS, SUPPORT RATING AND SUPPORT RATING FLOORS Changes to the banks' IDRs are likely to be linked to changes in the sovereign credit profile, and the Stable Outlooks reflect that on the sovereign ratings. The banks' ratings could also be downgraded, and hence notched down from the sovereign, in case timely support is not made available, when needed, or if increased pressure on the country's external finances heightens the risk of capital or exchange controls being introduced prior to a sovereign default. VR - BBK, BIB Downgrades of VRs could result from capital erosion due to a further marked deterioration in asset quality or a significant tightening of FX liquidity positions. Upgrades of VRs above the sovereign rating are extremely unlikely given the close linkages between sovereign and bank credit profiles. The rating actions are as follows: BBK and BIB Long-Term Foreign Currency IDR affirmed at 'B-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'B' Viability Rating affirmed at 'b-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'B-' DBRB 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 Support Rating affirmed at '5' Support Rating Floor affirmed at 'B-' Contact: Primary Analyst Anna Erachina Associate Director +7 495 956 7063 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Secondary Analyst Ilya Sarzhin Analyst +7 495 956 9983 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

Our Standards:The Thomson Reuters Trust Principles.
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