Companies@UA: База компаний Украины

Kyiv, August 5 (Interfax-Ukraine) - Fitch Ratings on August 5, 2009, downgraded Ukrainian Industrialbank's (INB) Long-term Issuer Default Rating (IDR) to 'CCC' from 'B-'.

The Outlook is Negative, reads a Fitch statement.

At the same time, the agency affirmed the Long-term IDRs of PrivatBank (Privat) at 'B' and Bank Khreschatyk (Khreschatyk) and Pivdennyi Bank (PB) at 'B-'. The National Long-term rating of Bank Diamant (Diamant) is affirmed at 'B+'(ukr)'. The Outlooks on each of these ratings are Negative.

According to the statement, Fitch's review of the five private domestically-owned Ukrainian banks took into account the sharp deterioration in asset quality metrics during H1, 2009, brought about by the depreciation of the UAH in Q4, 2008 and the sharp economic downturn, and the likely further rise in loan impairment charges. In common with other banks in Ukraine, each of the five banks reported a significant increase in NPLs (loans overdue by more than 90 days) and/or extended and restructured loans in H1, 2009. This has put considerable pressure on the banks' capital and, as loss absorption capacity remains moderate, Fitch believes capital support is likely to be required. Liquidity remains tight, although deposit outflows have abated in Q2, 2009, both for the sector as a whole and the reviewed banks in particular (with the exception of INB), after significant leakage in Q4, 2008 to Q1, 2009. Near-term refinancing risks are modest at each of the reviewed banks.

Fitch's experts say that the sharp deterioration in asset quality at INB, combined with its high level of related-party exposures, has resulted in the downgrade of its IDR. However, the deterioration in the credit profiles of other rated banks to date remains consistent with their relatively low rating levels and Negative Outlooks. Nevertheless, continued marked deterioration in asset quality metrics, if combined with insufficient replenishment of capital, could still lead to downgrades of these banks in the future.

INB's reported level of NPLs rose to 7.2% of the loan book at the end of H1, 2009 from 2.5% at the end of 2008, with exposures overdue for at least one day almost doubling to 21.1%. In addition, a high 51% of the portfolio was represented by restructured and extended loans. Fitch also believes related-party lending may be considerable, although the limited information about shareholders' other business interests makes it difficult to assess accurately the level of such transactions. Foreign currency lending was a substantial 51% of the loan portfolio at the end of H1, 2009. INB's loan impairment reserves (9% of the loan book at the end of H1, 2009) and capitalization (regulatory capital adequacy ratio was 16.8% at the end of H1, 2009) provide material loss absorption capacity, but this is still considered moderate given the extent of asset quality deterioration. INB's liquidity position is undermined by the significant concentration of customer accounts, with the top 20 depositors accounting for 42% of the bank's total liabilities at the end of H1, 2009. Customer funding has proved to be rather volatile, having contracted by 18% in H1, 2009, mainly due to a decrease in the balances of a single related-party depositor. Highly liquid assets (defined as cash, balances with the NBU net of obligatory reserves, net short-term interbank assets and unpledged securities eligible for refinancing with the NBU) were equal to 17% of customer accounts at the end of H1, 2009.

The affirmation of Privat's IDRs reflects the bank's so far manageable levels of reported loan impairment, better-than-average (for the Ukrainian market) risk management system and controls, higher loan loss absorption capacity (compared to most Ukrainian peers) and limited refinancing risks. The ratings are also supported by the bank's broad domestic franchise, sizeable market shares and the potential for further liquidity support from the National Bank of Ukraine (NBU) in case of need. Capital support from shareholders is also possible, but cannot be relied upon given the lack of transparency regarding the owners' finances.

However, Privat's ratings also consider the increase in both reported NPLs (8.8% of unconsolidated end-5M, 2009 loans) and extended/restructured loans (8.5%); the significant, albeit reduced, proportion of foreign currency lending (36%); and considerable loan concentrations. Fitch estimates that Privat could have increased the loan impairment reserve (LIR)/gross loans ratio to 17.4% at the end of H1, 2009, from the actual level of 15.5% (unconsolidated) before the regulatory capital ratio would have fallen to the minimum level of 10%. A further equity injection may be considered for H2, 2009, although no plans have been confirmed yet. The deterioration of asset quality and significant likelihood that further capital injections will be required have resulted in the Individual rating being downgraded to 'D/E' from 'D'. Privat's liquidity position is supported by borrowings from the NBU, which represented 11% of liabilities at the end of H1, 2009. At the same date, highly liquid assets were equal to 14% of total assets or 23% of customer accounts. Near-term repayments of foreign borrowings (mainly trade finance facilities and amortization of outstanding securitizations) are moderate, with the bank's $500 million eurobond not maturing until 2012.

Khreschatyk's reported NPLs were only 2% of gross loans at end-May 2009, but extended and restructured loans were high at 48%. Fitch notes, however, that Khreschatyk's asset quality benefits from a moderate - by Ukrainian standards - level of foreign currency lending (18% at end of H1, 2009), limited exposure to unsecured retail lending (less than 1%) and participation in lower-risk government and municipal lending programs (12%). An exposure to the City of Kyiv ('B'/Negative), funded by the NBU, accounts for a further 12% of the portfolio. The LIR/loans ratio of 1.6% and regulatory capital ratio of 15.9% at the end of H1, 2009 offer only limited loss absorption capacity, in Fitch's view, and this will only strengthen marginally as a result of planned subordinated debt and equity contributions (in total equal to 14% of the end of H1, 2009 regulatory capital) in H2, 2009. Liquidity is tight, with highly liquid assets amounting to only 10% of customer funds at the end of H1, 2009.

PB's reported non-performing loans comprised a still low 2.5% of the gross portfolio at the end of H1, 2009, but this reflected the bank's policy for managing exposures in arrears, with extended and restructured loans rising to a high 33% of the portfolio. Lending in foreign currencies (mainly the U.S. dollar) remained substantial at 54% of gross loans. PB's tier 1 Basel I capital ratio stood at 14.6% at the end of H1, 2009, although loss absorption capacity is limited, in Fitch view, given the modest loan impairment reserve (5% of the loan book). A small UAH 100 million subordinated debt issue (equal to just 7.6% of the end of H1, 2009 regulatory capital) is expected in H2, 2009, but there are no equity-raising plans at present, which Fitch views negatively. The deposit base, which forms the bulk of non-equity funding, has been quite stable during H1, 2009, although highly liquid assets provided only 12% coverage of customer accounts at the end of H1, 2009.

Diamant reported NPLs of 4.2% at the end of H1, 2009, although extended and restructured loans comprised a high 24% of the portfolio. Exposure to the troubled real estate sector (at least 27% of loans at the end of Q1, 2009) remains high and related-party lending is substantial (10% of the portfolio at the same date). Nevertheless, the regulatory capital adequacy ratio of 20% at the end of H1, 2009 provides some loss absorption capacity. As of mid-July 2009 Diamant's highly liquid assets covered only 9% of customer accounts, which is modest compared to the rapid deposit outflow seen recently; NBU facilities now account for a high 23% of Diamant's non-equity funding.

Fitch says that it will in the near future also review the ratings of Ukrainian state-owned banks, and in September plans to review the ratings of foreign-owned banks in Ukraine, focusing in particular on their Individual ratings.

Rating actions:

Industrialbank

Long-term IDR: downgraded to 'CCC' from 'B-'; Outlook Negative

Short-term IDR: downgraded to 'C' from 'B'

Individual rating: downgraded to 'E' from 'D/E'

Support rating: affirmed at '5'

Support Rating Floor: affirmed at 'No Floor'

CJSC PrivatBank

Long-term IDR: affirmed at 'B'; Outlook Negative

Senior unsecured debt: Long-term rating affirmed at 'B', Recovery Rating at 'RR4'

Short-term IDR: affirmed at 'B'

Individual rating: downgraded to 'D/E' from 'D'

Support rating: affirmed at '5'

Support Rating Floor: affirmed at 'No Floor'

Bank Khreschatyk

Long-term foreign currency IDR: affirmed at 'B-'; Outlook Negative

Short-term foreign currency IDR: affirmed at 'B'

Long-term local currency IDR: affirmed at 'B-'; Outlook Negative

Individual rating: affirmed at 'D/E'

Support rating: affirmed at '5'

Support Rating Floor: affirmed at 'No Floor'

National Long-term rating: affirmed at 'BBB-(ukr)'; Outlook Negative

Pivdennyi Bank

Long-term IDR: affirmed at 'B-'; Outlook Negative

Senior unsecured debt: Long-term rating affirmed at 'B-', Recovery Rating at 'RR4'

Short-term IDR: affirmed at 'B'

Individual rating: affirmed at 'D/E'

Support rating: affirmed at '5'

Support Rating Floor: affirmed at 'No Floor'

Bank Diamant

National Long-term rating: affirmed at 'B+'(ukr)'; Outlook Negative