Fitch Ratings has placed Dnipro-based PJSC CB PrivatBank's 'CCC' Long-Term Issuer Default Ratings (IDRs) and senior debt rating on Rating Watch Evolving (RWE), and downgraded its Viability Rating (VR) to 'f' from 'ccc'.

The rating actions follow the announcement on 18 December by the Ukrainian authorities that Privat will be nationalized in order to address its solvency problems.

"The downgrade of the VR to 'f' reflects Fitch's view that the bank has failed, given the scale of its reported recapitalization needs. The RWE on the IDRs and senior debt rating reflects uncertainty about whether losses will be imposed on senior creditors as part of the recapitalization process," Fitch said.

Privat's liquidity has also come under pressure from recent deposit outflows. The NBU has announced capital and liquidity support measures to ensure that Privat can continue to service its customer accounts, but the authorities have not yet clarified whether other creditors, including bondholders, might absorb losses.

The affirmation of the Support Rating at '5' and the Support Rating Floor at 'No Floor', like the RWE on the IDRs and debt rating, reflects uncertainty about whether state support will be sufficient to avert losses for senior creditors.

However, these ratings also reflects the non-strategic nature of the state ownership of Privat - in contrast to JSC The State Export-Import Bank of Ukraine (Ukreximbank) and JSC State Savings Bank of Ukraine (Oschadbank) - and the limited ability of the authorities to provide foreign currency support in case of need.

Fitch said that at end Q3 2016, Privat's foreign currency obligations were $4.8 billion, accounting for 52% of total liabilities, with $4 billion of this due to depositors. This compares with the country's international reserves of $15.3 billion at end-11M16.

"The authorities may support Privat's foreign currency position by injecting U.S. dollar-linked government bonds to recapitalize the bank. However, the combination of expensive deposit funding and holdings of potentially lower rate government bonds could put considerable pressure on the bank's margins and operating performance after recapitalization, even if its balance sheet solvency is restored," Fitch said.

Privat's Long-Term IDRs and senior debt rating could be upgraded to 'B-' if losses are not imposed on senior creditors as part of the recapitalization process, and the latter is sufficient to strengthen the bank's financial profile to an extent consistent with a 'B-' rating.

Privat's IDRs will be downgraded to 'RD' (Restricted Default) if some of the bank's senior, third-party, non-government creditors are bailed in as part of the recapitalization process.