Fitch upgrades PrivatBank to 'B-'; Outlook Stable
Fitch Ratings has upgraded the Long-Term Foreign Currency Issuer Default Rating (IDR) of PJSC CB PrivatBank (Privat) to 'B-' from 'RD' (Restricted Default). The Outlook on the Long-Term IDR is Stable.
Fitch said in a press release that the Long-Term Local Currency IDR was upgraded to 'B-' from 'CCC'. The Outlook is Stable. The Local Currency IDR, which had been on Rating Watch Evolving (RWE), was not downgraded to 'RD' prior to the upgrade.
In addition, Short-Term Foreign Currency IDR was upgraded to 'B' from 'RD', National Long-Term Rating upgraded to 'AA-(ukr)' from 'BB(ukr)', outlook Stable, off RWE and Viability Rating is upgraded to 'b-' from 'f'. Support Rating is affirmed at '5'.
According to the press release, the upgrade of the Long-Term Foreign Currency IDR reflects the upgrade of Privat's VR to 'b-' from 'f'.
The upgrade of Privat's VR reflects the stabilisation of the bank's credit profile following rehabilitation procedures implemented by the authorities after its nationalisation, reduced refinancing risks after the bail-in of senior unsecured debt and improved liquidity position.
However, the VR also factors in the bank's modest capitalisation, even after the completion of the remaining rehabilitation procedures planned in 4Q17, and weak pre-impairment profitability.
Fitch said that potential risks to capital may arise from litigation claims of the bailed-in senior creditors of the bank, which held $390 million of debt, equal to about 45% of forecast end-2017 FCC.
Non-performing loans (NPLs) comprised 88% of gross loans at end-1H17 and largely included a stock of legacy exposures issued to parties related to the former shareholders of the bank.
Cash-based recurring pre-impairment operating profitability (ie net of unpaid accruals and FX revaluation result) was weak in 1H17 (equal to about 0.4% of assets) after being negative in 2016.
Fitch said that the pre-impairment operating result is expected to remain weak in 2H17 and 2018 due to the high cost of funding and the high share of relatively low-yielding securities, while new lending is limited.
"It will take the bank time to originate higher-yielding assets (loans) and reduce deposit rates, which are necessary steps to achieve a reasonable level of profitability," Fitch said.