Moody’s downgrades Privatbank, Savings Bank of Ukraine, Ukreximbank

Moody's Investors Service has downgraded three Ukrainian banks: Privatbank, Savings Bank of Ukraine and Ukreximbank.
Moody's has refined its assessment of the ability of the Ukrainian state to provide systemic support as the erosion in the local economy's underlying credit fundamentals and the resulting reduced policy flexibility has adversely affected the government's ability to support the banking sector.
The rating agency previously used the local currency deposit ceiling (LCDC; Ba1 for Ukraine) as the main input for its assessment of the ability of the national government to support the banks. Although anchoring the probability of support at the LCDC is appropriate in most circumstances, this might overestimate the capacity, and even willingness, of a central bank to support financial institutions in the event of a banking crisis becoming both truly systemic and protracted.
Moody's believes that the government's local currency debt rating should have a greater weight when considering the ability of the government to provide systemic support, but it also believes that the probability of the risk that systemic banking losses will eventuate is medium to high.
Moody's views Ukraine as one of the riskier banking systems in Eastern Europe, given a rapidly deteriorating economic environment as the credit stress in the banking system has increased significantly, characterised by a deposit outflow from the banking system and a rapid increase in non-performing loans, which the rating agency expects to reach over 20% by the end of 2009 eroding the capital base of Ukrainian banks. Moody's has already taken a number of rating actions to address the impact of the crisis on Ukrainian bank ratings, lowering the bank financial strength ratings (BFSRs) and debt and deposit ratings of the majority of the country's banks.
Amid the recent crisis, the Ukrainian government has established a recapitalisation programme for the country's banking sector, pledging to inject UAH44 bln (USD5.7 bln) into the Ukrainian banks' capital over the course of 2009.