14:53 31.01.2014

S&P: ratings on three Ukrainian banks lowered after Ukraine downgrade

2 min read

Standard & Poor's Ratings Services (S&P) said it lowered its long-term counterparty credit ratings on three Ukraine-based banks - PrivatBank, Alfa-Bank Ukraine, and Kredobank - to 'CCC+' from 'B-'. The outlooks on the three banks are negative.

"We also affirmed our 'C' short-term counterparty credit ratings on these banks. At the same time, we lowered the Ukraine national scale ratings on Kredobank and Alfa-Bank Ukraine to 'uaBB-' from 'uaBBB-'," reads the report.

"We view PrivatBank as having higher stand-alone creditworthiness than Alfa-Bank Ukraine and Kredobank. Our 'b+' assessment of PrivatBank's SACP reflects its stronger franchise, competitiveness, and risk position than the other two banks," S&P said.

S&P views the sovereign's creditworthiness as a major risk factor for Ukrainian banks because of their high operational, funding, and asset exposure to the domestic economy. The escalation of the political turmoil in Ukraine makes the expected financial support package from Russia less certain, in our opinion, if the government of President Yanukovych falls, the agency said.

"The political instability, coupled with very weak economic prospects, increases risks for the banking sector, which is by nature confidence-sensitive. Still, under our base case scenario, we expect that the Ukrainian hryvnia (UAH) will gradually stabilize against the dollar at a rate of about UAH 8.50/$1," reads the report.

"A sharper devaluation would likely hurt the banks' already fragile asset quality and capital. We understand that the political turmoil so far hasn't had a pronounced impact on the banks' funding and liquidity positions. However, we don't rule out deposit withdrawals from or runs on the banks, disruptions to the banks' payment systems, and liquidity shortages, if protestors' clashes with the government escalate and continue," the agency said.

"Alfa-Bank Ukraine and Kredobank are subsidiaries of large foreign groups, whose creditworthiness is substantially superior to that of Ukraine. We think these foreign parents would provide extraordinary support to their affiliates in Ukraine," S&P said.

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