JP Morgan downgrades Oschadbank, Ukreximbank's eurobonds
JP Morgan has downgraded eurobonds of state-owned Oschadbank (due in 2023 and 2025) and Ukreximbank (due in 2022 and 2025) from Neutral (N) to Underweight (UW) due to sovereign risks, according to a review about the Ukrainian banks issued on April 30.
According to the document, the decision is linked with uncertainty about the government's economic policy, the upcoming parliamentary election and the risk of a split and populist parliament, which may increase Ukraine's external vulnerability.
JP Morgan recalled that Ukraine continues to have significant external financing needs and requires stable access to foreign funding; which may be at risk, since the likelihood of the International Monetary Fund (IMF) allocating funds to the country this year is low.
JP Morgan also believes that the state should be interested in continuing the operation of both banks, which are systemic and are among the three largest in the country.
According to the authors of the review, it is important to track changes in the creditworthiness of banks, on which the likelihood of potential debt restructuring, state support and the attitude of the National Bank of Ukraine may depend. JP Morgan said that given the greater external debt and the potentially higher capital requirements for the stress tests of the National Bank, in general, JP Morgan was more cautious about Ukreximbank, comparing it with Oschadbank. According to the review, a potential debt restructuring issue may arise, but at the moment JP Morgan does not consider this option as the baseline for either of these two state-run banks.
According to the document, "directive" lending is another area of risk for the state-owned banks, and such lending may be sensitive to changes in political power.
According to the report, due to the significant volume of liquid foreign exchange assets and the high cost of foreign currency borrowing compared to domestic foreign currency deposits, the issuance of eurobonds by Oshchadbank and Ukreximbank in the near future is unlikely, while the issue of hryvnia-pegged bonds is possible.