Moody’s downgrades Bank Evropesykiy (Ukraine)

Moody's Investors Service has downgraded the long-term local and foreign currency deposit ratings of Bank Evropeyskiy (BE) to Caa2 from B3 and placed the ratings on review for possible further downgrade. BE's bank financial strength rating (BFSR) was also downgraded to E from E+. The long-term national scale rating (NSR) was downgraded to B3.ua from Baa3.ua and placed on review for possible further downgrade.
According to Moody's, the Caa2/Not Prime/E global scale ratings reflect BE's global default and loss expectation, while the B3.ua national scale rating reflects the standing of the bank's credit quality relative to its domestic peers.
"Today's rating action was prompted by the recent tightening of BE's liquidity position and the bank's failures to process on-time repayment to its depositors, which amounts to default on the bank's obligations according to Moody's definition of default," explained Yana Ruvinskaya lead analyst for Bank Evropeyskiy. According to the bank, the weakening liquidity position was caused by the outflow of deposits that the bank experienced during recent months. The bank has substituted some of these deposits with the funding it has received from National Bank of Ukraine (ca 13% of liabilities).
Moody's is aware of the shareholder's intention to merge BE with Bank National Standard (not rated). Bank National Standards is controlled by the same shareholder and reported total assets of UAH 1 billion (US$ 132 million) as at year-end 2008 according to Ukrainian Accounting Standard. However, given the lack of certainty regarding conclusion of this merger and lack of further details, Moody's has not factored any impact on BE's ratings into its current financial strength assessment.