| Fitch Upgrades IDRs of Bank of Georgia and Basisbank, Individual Rating of VTB Georgia |
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06/08/2010 17:33 (546 Day 16:52 minutes ago) | |||||
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The FINANCIAL -- Fitch ratings has upgraded the Long-term Issuer Default Ratings (IDRs) of two Georgian banks and affirmed three others.
The two upgraded banks are Bank of Georgia (BOG) and Basisbank while the affirmed banks are JSC VTB Bank (Georgia) (VTBG), ProCredit Bank (Georgia) (PCBG) and TBC Bank (TBC). At the same time, VTB G's Individual rating has also been upgraded. All of the banks' Long-term IDRs are on Stable Outlook. A full list of rating actions is provided at the end of this announcement.
The upgrades of the Long-term IDRs of BOG and Basisbank and the Individual rating of VTB G in part reflect Fitch's view that the Georgian banking system is emerging from the global financial crisis and the domestic economic downturn in reasonably good condition. The upgrades of BOG and Basisbank further reflect those banks' demonstrated ability to survive the major asset quality stress posed by the crisis and two deposit outflows, while maintaining solid capital positions and comfortable liquidity. The upgrade of the Individual rating of VTB G reflects the cleaning up of the balance sheet following a recent equity injection.
The upgrade of BOG's Long-term IDRs to 'B+' from 'B' reflects the stabilisation in the bank's asset quality metrics, its strong Basel capital ratios, currently comfortable liquidity position supported by sizable deposit inflows, limited refinancing risk and a track record of manageable performance through the crisis. The ratings are also supported by the bank's generally good governance and strong customer franchise in Georgia.
Negatives for the bank's credit profile, in common with other Georgian banks, are the still quite high-risk operating environment and a high level of foreign currency lending. At end-Q110, the bank reported loans overdue by more than 90 days (NPLs) at a moderate 8.6% of total loans, with another 6% of total loans being restructured. Fitch notes some signs of stabilization in BOG's asset quality in H209-H110, and loan impairment reserves covered NPLs by 107% at end-Q110. Despite the loss in 2009, driven by high credit costs and the write-off of goodwill relating to the Ukrainian subsidiary, BOG's consolidated Basel I tier 1 and total capital ratios were a strong 22.1% and 32.3%, respectively, at end-Q110, representing significant loss absorption capacity.
BOG's stand-alone customer funding increased 28% and 10% in H209 and H110, respectively (broadly in line with sector growth), and the liquidity position is currently comfortable, with liquid assets covering 54% of customer funding at end-Q110. Refinancing risk is limited due to the quite conservative management of liquidity and the role of international financial institutions (IFIs) as lenders, although Fitch notes that the bank's eurobond, maturing in February 2012, comprises a significant 8.7% of assets (net of buybacks to date).
After write-offs made in H209, Basisbank's NPLs were a moderate 3.5% of total loans at end-H110, with an additional 2.3% of loans being restructured. Lending growth was a high 25% in H110 (versus 11% sector growth), which was driven to a large extent by intensified lending to SMEs; however, concentrations remained high in the loan portfolio. Fitch views the gradual lengthening and diversification of the funding base as positive. The capital position is satisfactory with Tier 1 and total regulatory capital ratios of 12.6% and 12.8%, respectively, at end-H110 under quite stringent local rules; capital could be boosted significantly if the bank is able to sell repossessed assets, which are heavily reserved and/or deducted from regulatory capital.
The 'BB-' Long-term foreign currency IDRs of PCBG and VTB G are driven by potential support from their majority owners, Germany's ProCredit Holding AG (PCH; 'BBB-'/Stable; 100% stake in PCBG), and Russian state-controlled JSC VTB Bank (VTB; 'BBB'/Stable; 87.4% stake in VTB G) and constrained by the Georgian Country Ceiling of 'BB-'. In Fitch's view, PCH and VTB would have a strong propensity to support PCBG and VTB G, respectively, but Georgian transfer and convertibility risks limit the extent to which this support can be factored into the ratings. PCBG's and VTB G's Long-term IDRs are likely to move in line with Country Ceiling.
The upgrade of VTB G's Individual rating to 'D/E' from 'E' reflects the bank's much sounder balance sheet after a GEL38m equity injection (equal to 36% of pre-injection equity) received from VTB in June 2010. Following the injection and subsequent significant write-offs (in total GEL31m of loans were written off in H110, equal to 11% of the end-2009 portfolio), asset quality is sound. Reported NPLs were at 3.2% at end-H110, adjusted for two large loans guaranteed and financed by VTB . The regulatory Tier 1 and total capital ratios increased, respectively, to 20.2% and 24.4% at end-Q210 from 10.1% and 17% at end-Q110. At the same time, Fitch notes that the portion of restructured loans remained high at 16% of adjusted loans, and concentrations on top borrowers and the real estate and construction sectors were also sizable, albeit reduced relative to equity.
The affirmation of PCBG's 'D' Individual rating reflects its significantly better asset quality relative to other banks in the sector, with reported NPLs at 1.7% of total loans at end-H110 and restructured loans at 3%. Fitch also notes the bank's track record of good performance through the crisis. Capitalisation remains strong and liquidity comfortable.
TBC's 'B+' Long-term IDR is driven by potential support from IFIs, which jointly own a majority (55%) stake in the bank. Fitch continues to believe that the probability that TBC may receive support from IFIs in case of need is significant. However, some doubt remains about the ability and readiness of the IFIs to always provide coordinated and timely support, if required. Quite moderate asset quality and still high exposure to real estate and construction continue to weigh on the bank's credit profile. The level of NPLs remained moderate at 4.3% at end-H110; however, restructured loans were still a significant 15.3% at end-H110, albeit down from 20.6% at end-H109. Exposures to the distressed real estate and construction sectors decreased but remained high at 19% of total loans at end-Q110. TBC's liquidity is comfortable and covered customer funding by 43% at end-H110. Capitalisation was bolstered by IFI contributions in 2009, and at end-2009 the Basel tier 1 and total ratios were a high 24.7% and 37.1%, respectively. At end-H110, under stringent local rules, the bank's tier 1 and total regulatory capital ratios were 13.7% and 20.4%, respectively.
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