Moody’s negative on three Ukraine banks

Moody's Investors Service has issued a negative outlook on the ratings of three Ukraine banks, ranging from ‘uncertain’ to a downright downgrade.
Moody’s is maintaining its rating review of Rodovid Bank. However, the direction of the review has been changed to uncertain, from a possible downgrade.
On March 20, Rodovid Bank's deposit ratings were downgraded to Caa2 from B3 and placed under review for further downgrade driven by the payment moratorium imposed on it by the National Bank of Ukraine (NBU). At that time, the bank's financial strength rating (BFSR) was also downgraded from E+ to E with a stable outlook.
The Moody’s announcement regarding the direction of the review was prompted by the Ukrainian government's recent announcement that the deposits and most of the performing loans of a troubled Ukrainian bank – Ukrprombank, would be transferred to Rodovid Bank. The amount of the deposits to be transferred is expected to be about UAH 7 bln (USD 875 mln). This additional obligation, if assumed by the bank, would represent a significant increase of its outstanding liabilities (UAH 7.5 bln at end Q3 2009). Of importance to the ratings of Rodovid Bank is that the transfer of assets and liabilities would be accompanied with a substantial capital and liquidity injection from the government. The officials indicated that the deposit transfer and recapitalisation of Rodovid Bank will likely be completed in November.
Moody's expects that if the transfer does materialise, it is likely to be concluded by January 2010, i.e. before the presidential elections in Ukraine, and to be accompanied by an adequate capitalisation and liquidity injection into Rodovid Bank.
However, if the transfer of the deposits does not materialise and the payment moratorium on Rodovid Bank's liabilities is maintained, this may exert further negative pressure on the bank's ratings. Likewise, a transfer of Ukrprombank's deposits and loans to Rodovid Bank without an adequate capital and liquidity injection would also have negative implications for Rodovid Bank's ratings.
Earlier, Moody's downgraded Ukrprombank's local and foreign currency deposit ratings to Caa3 from Caa2 and the National Scale Rating (NSR) of the bank to Caa3.ua from B3.ua, and placed these ratings on review for a possible further downgrade.
According to Moody's, the announced transfer to Rodovid Bank increases the expected losses for the bank's remaining creditors (other than retail depositors) and increases the probability of the liquidation scenario for Ukrprombank.
Meanwhile, Moody's said it is continuing its rating review of Bank Nadra. On February 12, Moody's downgraded the bank's deposit ratings to Caa2 and National Scale Rating (NSR) to B3.ua and placed them on review for possible further downgrade. Nadra's bank financial strength rating (BFSR) was downgraded to E with a stable outlook. These actions were prompted by Nadra being placed into temporary administration by the NBU following a run on deposits at the bank that could not be contained by liquidity support provided by the NBU to the bank at the time.
Separately, on June 26, Moody's downgraded Nadra's long-term foreign currency senior unsecured debt rating to C from Caa2, with a stable outlook, based on its expectation that the bank's senior unsecured creditors will incur significant losses consistent with a C rating category.
The bank's bondholders and the majority of its wholesale creditors have so far not accepted the original restructuring proposal by the bank and the debt restructuring negotiations continue.
Moody's review for a possible downgrade of the bank's deposit ratings continues to capture the present uncertainty with regard to the future of Nadra, as the NBU and the Ukrainian government are currently considering solutions concerning the bank's future. These solutions include a possible recapitalisation of the bank by the government in the event that the bank successfully restructures its debt to wholesale creditors and the bondholders, but they may also include a liquidation.