The FINANCIAL -- Moody's Investors Service has on September 29 confirmed TBC Bank 's bank financial strength rating (BFSR) and local-currency deposit rating at their current level, thereby concluding the review the rating agency initiated on 8 June 2009.

The outlook on the bank's long-term foreign currency deposit rating was changed to stable from negative, while all other ratings were assigned a negative outlook.

"Today's confirmation of the ratings is based on Moody's view that TBC Bank benefits from sufficient capitalisation to absorb anticipated levels of stress, despite the deteriorating operating environment in Georgia and the effect of weakening credit conditions on the bank's asset quality and performance in H1 2009," says Stathis Kyriakides, AVP-Analyst in Moody's Financial Institutions Group. In particular, TBC Bank 's capitalisation was enhanced in April 2009 when it raised USD40 million of new capital, at which time the EBRD, IFC, DEG and FMO increased their combined stake in the bank from 22% to 55% (holding a respective 20%, 20%, 11.7% and 3.3%). Domestic political tension, which culminated in opposition-led (but predominantly peaceful) street demonstrations earlier in the year, has also tapered off. Demonstrations do not appear to have affected the disbursement of donor countries' pledged funds in a material way. As of June 2009, Georgia had already drawn down 15% and entered into agreements committing an additional 25% of the total USD4.5 billion of pledged funds -- USD1.105 billion of which earmarked for the financial sector.

Further to the capital increase, TBC Bank was also able to access USD103 million worth of funding from IFIs in 2009(USD44 million of subordinated debt - tier 2 capital - and USD59 million of senior debt). Although credit charges remained high in H1 2009, Moody's notes that the bank was able to generate profit of GEL1.9 million (USD1.1 million) compared with the GEL57.6 million (USD34.7 million) million loss recorded at YE2008.

"The negative outlook on the bank's BFSR, local currency deposit rating and senior unsecured debt rating reflects Moody's view that asset quality pressure will probably lead to sustained pressure on credit charges for the foreseeable future," says Kyriakides. The rating agency explains that ongoing pressure on credit charges is due to the central bank's progressive provisioning requirements on already delinquent loans and the likelihood of further upward pressure on non-performing loans.

Although the creditworthiness of sectors earmarked to receive economic aid is likely to improve, Moody's notes that the credit standing of retail customers may continue to weaken. Factors affecting retail customers' credit standing -- other than weaker economic conditions and the rise in unemployment -- include a decline in inward remittances (from the Georgian diaspora), which supplement household income, and a delay in the benefits of international aid feeding through to the population. Signs of economic stabilisation in the country are not yet sufficient to ensure credit conditions will improve in the near term. "The evolution of the bank's ratings will depend on developments in the operating
environment and its own intrinsic strength," adds Kyriakides.

Moody's cautions that, despite currently subdued domestic politics, the events of August 2008 and the subsequent stand-off in the country's relations with Russia (notwithstanding Western aid) are indicative of Georgia's elevated external political risk.

Moody's last rating action on TBC Bank was implemented on 8 June 2009, when the bank's D- BFSR and Ba3 global local currency deposit ratings were placed on review for possible downgrade.

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