Fitch upgrades PrivatBank's viability rating from 'b-' to 'b', affirms Ukreximbank, Ukrgasbank, Oschadbank at 'b-'
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of PrivatBank, Oschadbank, Ukreximbank and Ukrgasbank at 'B', with positive outlooks, the rating agency said on its website.
"At the same time, Fitch has upgraded PrivatBank's Viability Rating (VR) to 'b' from 'b-', affirmed the 'b-' VRs of the other three state-owned banks and removed all four entities' VRs from Rating Watch Positive (RWP)," the report says.
"The upgrade of PrivatBank's VR reflects its stronger execution capability, especially under better operating conditions as well as the bank's improving financial metrics. The latter is captured by the stabilized asset quality, reduced capital encumbrance by unreserved legacy problem assets and stronger profitability, backed by a return to lending growth and declining loan impairment charges (LICs)," Fitch said.
"The affirmation of the VRs of Oschadbank, Ukreximbank and Ukrgasbank reflects our view that they remain constrained by significant stocks of problem loans and potentially significant capital pressures as these exposures may require additional provisioning in a stress scenario. These banks' VRs also capture modest, albeit gradually improving, performance and relatively weak capital buffers in light of asset quality risks," Fitch experts stated.
"All four banks' VRs continue to consider sensitivity to the cyclical and high-risk Ukrainian operating environment, significant dollarization of lending (less at PrivatBank) and the linkage to the sovereign's credit profile due to significant holdings of government bonds (between 28% and 56% of total assets). Funding profiles are stable at all four banks and liquidity has been helped by deposit growth driven by local-currency appreciation," according to the document.
According to the report, Fitch also affirmed the long-term issuer default ratings (IDRs) in foreign and national currency of PrivatBank, Oschadbank, Ukreximbank and Ukrgasbank at level "B" with a positive outlook.
"The propensity of the Ukrainian authorities to provide support to all four banks remains high, in Fitch's view, taking into account their 100% state ownership (95% for Ukrgasbank), high systemic importance (greater for PrivatBank and Oschadbank, given their 34% and 19% market shares in retail deposits, respectively), the record of capital support provided under different governments (Oschadbank, Ukreximbank), post-nationalization equity support to PrivatBank, and the small cost of potential support to Ukrgasbank due its moderate size. However, the ability of the authorities to provide support is limited, in particular in foreign currency, as indicated by Ukraine's 'B' Long-Term Foreign-Currency IDR," Fitch summarized.