Ratings

Fitch Comments on Belarusbank Outlook Change

Fitch Ratings-London/Moscow-7 July 2009: Fitch Ratings' Outlook revision on Belarus-based Belarusbank's (BBK) B- Long-term Issue Default Rating (IDR) to Negative from Stable announced earlier today was part of a more general review of Belarusian state banks. This took into account the heightened risks stemming from the weaker outlook for Belarusian sovereign finances and the Belarusian economy.

BBK's Long-term and Short-term IDRs currently reflect its stand-alone financial position, but are also underpinned by potential support from the Belarusian authorities, given its state ownership and very high importance to the banking system. The Negative Outlook on BBK, as for three other state-owned banks, reflects the weakening ability of the Belarusian authorities to support the banking system, in case of need. It also takes into account the potential for a marked deterioration in the bank's stand-alone financial profile in case of a sharp economic downturn, reduced state support for the corporate sector or a further marked depreciation of the Belarusian Ruble (BYR).

The share of reported non-performing loans (NPLs, defined as loans 90 days overdue) at BBK has remained low (0.8% at end-H109), and restructured loans were also moderate (1.3% of the loan book at the same date). However, continued rapid loan book growth (22% for 5M09; 44% in 2008) in a weakening environment may expose BBK to additional credit risks. The bank's Tier 1 and total regulatory capital ratios stood at 10.9% and 13.9%, respectively, at end-May 2009. According to Fitch's estimates, at end-May 2009 the bank could raise the level of regulatory reserves to an estimated 7% (from the current 1.2%) of the loan book before its capital ratio would have fallen to the regulatory minimum, absent any further BYR devaluation.

Fitch also notes that BBK's liquidity deteriorated in recent months. However, liquidity risk is mitigated by the bank's broad deposit base and the relative stability of customer accounts to date.

BBK is the largest bank in Belarus by asset size, with market share in system assets and retail deposits of 39% and 59%, respectively, at end-Q109. BBK is 99.8% owned by the state. 

Rating actions:

-Long-term IDR: affirmed at 'B-' ; Outlook changed to Negative from Stable

-Short-term IDR: affirmed at 'B' 

-Support rating: affirmed at '5'

-Individual rating: affirmed at 'D/E'

-Support Rating Floor: affirmed at 'B-'

 

	Foreign currency short-term senior	Foreign currency long-term senior	Long-term rating outlook	Individual	Support
2000	C	CC	-	E	4T
2001	C	CCC-	Stable	E	4T
2002	C	CCC-	Stable	E	5
2003	C	CCC	Stable	E	5
2004	C	CCC+	Stable	D/E	5
2005	B	B-	Stable	D/E	5
2006	B	B-	Stable	D/E	5
2007	B	B-	Stable	D/E	5
2008	B	B-	Stable	D/E	5
2009	B	B-	Negative	D/E	5

 

 

Moody's concludes rating review of four Belarus banks

 

Local currency deposit ratings of the four banks have been downgraded to Bl; stable outlook

Moscow, July 14, 2009 - Moody's Investors Service has downgraded the long-term global local currency (GLC) deposit ratings of four Belarus banks as follows: Belarusbank - to B1 from Ba1; Belagroprombank -to B1 from Ba1; Belpromstroibank - to B1 from Ba1; and Belinvestbank - to B1 from Ba2. The rating agency has affirmed all of the banks' other ratings including their E+ bank financial strength ratings (BFSRs), but has lowered the Baseline Credit Assessment (BCA) of Belarusbank to B2 from B1; the other banks' BCAs remain unchanged. The outlook on the four financial institutions' long-term ratings is stable, in line with the stable outlook on Belarus's sovereign rating.

These rating actions conclude Moody's review process, which was initiated on 26 May 2009 and was focused on Belarus's ability to provide support to its banking system, as outlined in the rating agency's Special Comment entitled "Financial Crisis More Closely Aligns Bank Credit Risk and Government Ratings in Non-Aaa Countries", published in May 2009.

Moody's has refined its assessment of the ability of the Belarus state to provide systemic support as the worsening of the local economy and the resulting reduced financial capacity and policy flexibility may adversely affect the Belarus government's ability to support the banking sector.

Moody's previously used the local currency deposit ceiling (LCDC) as the main input for its assessment of the ability of the national government to support the banks. Although anchoring the probability of support at the LCDC is appropriate in most circumstances -- regarding the provision of liquidity to a selected number of institutions over a short period of time -- this might overestimate the capacity, and even willingness, of a central bank to support financial institutions in the event of a banking crisis becoming both truly systemic and protracted.

Moody's therefore believes that the government's local currency debt rating (usually adjusted by no more than two notches of uplift due to the array of tools available to the central bank to support the banking system) should have a greater weight when considering the ability of the government to provide systemic support.

Moody's refined approach allows two notches of uplift from the government bond rating as the main input for its assessment of the ability of the national government to support the banks. However, given the weakening economic conditions in Belarus and significant involvement of the state into the banking sector and the real economy -- both dominated by state-controlled entities -- Moody's views Belarus's government bond rating of B1 (stable outlook) as the most appropriate indicator of the government's ability to provide systemic support to the local banking sector.

Amid the crisis, the Belarus government has been supportive by providing unsecured short-term liquidity to the system and some additional capital to the four state-owned banks, as reflected by recent capital injection of BYR3 trillion (US$1.4 billion) in December 2008. The alignment of the systemic support input with the government bond rating also reflects Moody's view of the state's willingness to support the banking system.

Belarusbank:

- GLC long-term deposit rating: downgraded to B1 from Ba1;

- Other ratings have been affirmed at their current levels;

- The outlook on all long-term ratings is stable;

- BCA: lowered to B2 from B1.

Belarusbank's BFSR remains E+ but Moody's decided to map this to a lower BCA of B2 rather than B1. This reflects the deterioration of the local operating environment (although the level of bank's problem assets was relatively low at 0.6% at end-2008). The situation is aggravated by the bank's loan book concentration on large loans to export-oriented companies. The bank's corporate loan book is partly secured by guarantees from local authorities, and the interest expenses of the bank's retail lenders -- under the social mortgage programme -- is largely subsidised by the government, thus making Belarusbank increasingly dependent on the government's ability to fulfil its liabilities.

The four state-owned banks comprise the majority of the Belarus banking system and provide lending to a large extent under the state development programmes and/or to state-owned companies. Therefore, Moody's expects that the majority of the troubled lending to the state sector and strategic enterprises will be assisted via either direct support to the troubled entities or the injection of capital into the banks as well as by liquidity support.

At the same time, Moody's notes that the large Belarus public sector may overall require substantial government support, resulting in a strain on the government's resources and undermining its capability to support the banking sector without triggering adverse macroeconomic effects. Meanwhile, any change in the outlook on Belarus's sovereign ratings could trigger changes in the outlook on the banks' long-term ratings.

	Foreign currency long-term	Local currency long-term	Outlook	BFSR
2007	B2	Ba1	Stable	E+
2008	B2	Ba1	Stable	E+
2009	B2	B1	Stable	E+