Moody’s cuts Ukraine bank ratings to ‘negative’

Moody's Investors Service has changed to ‘negative’ from ‘stable’ the outlook on the bank financial strength ratings (BFSRs) of 15 Ukrainian banks and has also lowered the outlook on the long-term global local currency or foreign currency deposit or debt ratings of 19 Ukrainian banks to ‘negative’ from ‘stable’.
The following ratings now carry negative outlook: Alfa Bank Ukraine, Bank Finance and Credit Ltd, Bank Nadra, Subsidiary Bank Sberbank of Russia, Calyon Bank Ukraine, First Ukrainian International Bank, ING Bank Ukraine, Kreditprombank, OTP Bank Ukraine, Pivdennyi Bank, Privatbank Commercial Bank, Raiffeisen Bank Aval, Swedbank Invest, Ukreximbank, Ukrsibbank, Ukrsotsbank, Bank Evropeyskiy, Credit Dnepr Bank, Dongorbank, Express-bank, Imexbank, Industrial Bank, Khreschatyk Bank, Ukrgasbank, Ukrgazprombank, Ukrprombank and VAB Bank.
At the same time, Moody's has lowered to ‘stable’ from ‘positive’ the outlook on the E+ BFSR of Forum Bank.
Moody's has also downgraded the National Scale Ratings (NSRs) of the following banks: Bank Nadra, First Ukrainian International Bank, CJSC, Credit Dnepr Bank, Industrial Bank, Ukrgasbank and VAB Bank.
"The change in rating outlook to negative reflects the substantial increase in credit and liquidity risk for the Ukrainian banks, arising from the steep depreciation of the hryvna over the past few months. Since 53% of loans by Ukrainian banks rated by Moody's and nearly 47% of the liabilities of these banks are denominated in foreign currencies, mainly in US dollars, the hryvna depreciation has led to a serious rise in the banks' vulnerability to credit risk," said Yaroslav Sovgyra, a Moscow-based Vice President – Senior Credit Officer.
In Moody's view, the weakening of the hryvna will materially impact Ukrainian bank borrowers' ability to repay their foreign currency loans, consequently leading to a substantial increase in non-performing loans (NPLs) and loan loss provisioning charges by Ukrainian banks, thus materially worsening their asset quality, profitability and capital adequacy indicators in 2009.
In addition, Moody's notes that the hryvna's depreciation has significantly increased the direct FX debt burden of the Ukrainian banks. This may be less problematic for the subsidiaries of the foreign banks, which account for the bulk of the external wholesale debt, since they are likely to obtain refinancing from their parent banks. However, for a number of local Ukrainian banks, repayment of the short-term foreign currency debt will be a challenge that is likely to severely depress their liquidity position and worsen their funding profiles.