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Rating Action:

Moody's affirms ratings of 3 Georgian banks, outlooks remain stable

17 Dec 2021

London, 17 December 2021 -- Moody's Investors Service, ("Moody's") has today affirmed the Ba2 long-term deposit and senior unsecured debt ratings and the ba3 Baseline Credit Assessment (BCAs) of JSC Bank of Georgia (Bank of Georgia) and JSC TBC Bank (TBC Bank), as well as the Ba3 long term deposit ratings and b1 BCA of Liberty Bank JSC (Liberty Bank). The rating agency has also affirmed the Counterparty Risk Ratings (CRRs) of Ba2/NP and Counterparty Risk Assessments of Ba2(cr)/NP(cr) of the above mentioned banks.

Today's rating affirmations reflect the Georgian banks' resilience through the economic cycle, coupled with Moody's expectation of improved profitability compared to 2020 and sustained higher capital levels, balanced against high asset risk relating to the banks' foreign exchange exposures and increased reliance on market funds.

The outlook on all ratings remains stable, driven by Moody's expectation that the banks' performance and underlying financial metrics will continue to be resilient and consistent with their ratings.

A full list of affected ratings is at the end of this press release.

RATINGS RATIONALE

-- Bank of Georgia

The affirmation of Bank of Georgia's ba3 BCA reflects the bank's adequate capitalisation at levels above rising regulatory requirements. The bank's reported tangible common equity to risk weighted assets was 15.9% at end September 2021 (based on NBG's Pillar 3 disclosures), compared to 14.2% at end 2018, while its Core Equity Tier 1 (CET1) ratio was 12.8% at end September 2021, already above the minimum regulatory requirement of 12.2% coming into force in 2023.

The affirmation of the bank's BCA also reflects the bank's resilient profitability, which even during 2020 remained positive, with a return on tangible assets (RoA) at 1.6%, despite high level of loan loss provisions during the first half of the year (at 1.7% of gross loans) and lower net interest margins. During the first nine months of 2021 the bank restored its profitability to a RoAA of 3.2%.

These strengths are balanced against the banks extensive lending in foreign currency, accounting for 53% of total loans and high deposit dollarisation, accounting for 63% of total deposits, although both have been somewhat reducing in the past 18 months, which could weigh negatively on the bank's capital as most capital is denominated in local currency.

The Ba2 long-term deposit and senior unsecured ratings, continue to incorporate one notch of government support uplift. We believe there is a high likelihood of government support for Bank of Georgia, in case of need, because of the bank's systemic importance and despite constraints on the government's financial flexibility to provide support to failing institutions because of the still-high degree of dollarisation in the economy.

For Bank of Georgia's CRR and CRA of Ba2(cr)/NP(cr) and Ba2/NP respectively, the starting point is one notch above the bank's ba3 Adjusted BCA to which Moody's then typically adds the same notches of government support uplift as applied to the deposit ratings. In the case of Bank of Georgia, the CRR is however aligned with its deposit rating, which is already in line with Georgia's government bond rating of Ba2.

-- TBC Bank

The affirmation of TBC's ba3 BCA reflects the bank's adequate capitalisation, with TCE/RWAs of 14.9% at end September 2021 and a reported CET1 of 13.4% (based on NBG's Pillar 3 disclosures) which is already above the increased future regulatory minimum of 12.1%-12.5% coming into effect in 2023. The bank's BCA also reflects the bank's resilient profitability that, although at lower levels than historical averages, remained positive during 2020 with a RoA of 1.5%. Moody's expects the bank to continue to recover its profitability during 2021, as evident by the 3.4% RoA reported at end September 2021.

These strengths are balanced against the bank's asset quality deterioration during 2020, as problem loans (NPLs) increased to 6.1% of gross loans at end 2020 from 3% in 2019, due to consumer and corporate clients being affected by the pandemic and also due to the significant devaluation of the local currency. At end 2020, 34% of TBC bank's loan book was denominated in foreign currency, to borrowers with no foreign currency income. Moody's expects the bank's NPL ratio to improve from 2020 levels due to recoveries in the corporate sector, but still remain elevated as delinquencies relating to consumer and mortgages will take longer to recover. The BCA also reflects TBC's use of market funds and the level of deposit dollarisation (63% of total deposits at end 2020) as well as the agency's expectation that use of market funds will increase in the next 12-18 months as deposit levels normalise from current levels.

The Ba2 long-term deposit and senior unsecured ratings, continue to incorporate one notch of government support uplift. This assumption is based on the bank's systemic importance, despite the constraint on the government's financial flexibility to provide support to failing institutions because of the high degree of dollarisation in the economy. TBC Bank is the largest banking group in Georgia.

For TBC Bank's CRR and CRA of Ba2(cr)/NP(cr) and Ba2/NP respectively, the starting point is one notch above the bank's ba3 Adjusted BCA to which Moody's then typically adds the same notches of government support uplift as applied to the deposit ratings. In the case of TBC Bank, the CRR is however aligned with its deposit rating, which is already in line with Georgia's government bond rating of Ba2.

-- Liberty Bank

The affirmation of Liberty bank's b1 BCA reflects the bank's performance through the pandemic, supported by its solid liquidity and stable deposit base. Liberty bank's liquidity position increased during 2020, with liquid funds to tangible banking assets at 37.7% from 32.7% at end 2021. Furthermore, the bank continues to benefit from a granular deposit base which has further increased during the last 20 months, by 37%, while deposit dollarisation although still accounting for 30% of total deposits, has improved and remains significantly below Georgian peers. Moody's expects that the bank will continue to utilize to a larger degree market funding to support its growth targets, but views positively that the majority of the funding is from international financial institutions.

The BCA also reflects Moody's expectation that the bank's profitability will recover from 2020 levels, which were heavily impacted by high provisions and payment holidays granted to a performing part of its book in light with the Government's coronavirus support measures. However, the rating agency expects future profitability to stabilise at a lower rate than historical levels, at approximately 1.3% of tangible banking assets, as the bank moves to lower yielding products. The agency also recognises the bank's continuous efforts to diversify its business profile towards that of a universal bank, from being a consumer-focused lender.

The affirmation of the BCA also takes into consideration the somewhat increased operational risk weighing negatively on the bank's risk profile and the lower levels of capital. During 2019 and 2020 the bank experienced two incidents of internal fraud (with damages from both cases have been fully covered by insurance) highlighting the need for further controls to limit operational risk. The rating agency views positively the bank's action to mitigate these risks in the past 18 months but also recognizes that the implementation is still ongoing. The affirmation of the BCA also takes into consideration the improvement on the bank's asset quality metrics during 2020, with an NPL ratio of 5.4% at end 2020 from 6.7% at end 2019, which the rating agency views positively.

The bank's capital metrics are compliant with regulatory requirements, (reported CET1 of 10.8% against a requirement of 7.1%), however they degreased markedly during 2020 due to limited internal capital generation and high asset growth. The agency expects that even as profitability recovers during 2021, the bank's capital buffers will remain low compared to peers, especially as the bank meets its ambitious growth targets.

The Ba3 long-term deposit ratings, continue to incorporate a moderate likelihood of government support from Georgia (Ba2 stable) for Liberty Bank in case of need, reflecting the bank's significant market share of 6.0% of domestic deposits as of end September 2021 and its importance to the country's payment system because of its role in distributing state pensions and welfare payments in the country. This results in one notch of uplift as was the case previously.

For Liberty Bank's CRR and CRA of Ba2(cr)/NP(cr) and Ba2/NP respectively, the starting point is one notch above the bank's b1 Adjusted BCA, to which Moody's then typically adds the same notches of government support uplift as applied to the deposit ratings. As such, Liberty Bank's CRR and CRA are one notch higher than the bank's deposit rating.

OUTLOOK

The outlook on all ratings remains stable, driven by Moody's expectation that the banks' performance and underlying financial metrics will continue to be resilient and consistent with their ratings.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

-- Bank of Georgia

There is limited upward rating pressure for the bank's deposit and foreign-currency senior unsecured debt ratings, given that they are already in line with Georgia's sovereign rating. Upward rating pressure will require both an improvement in the bank's standalone assessment (BCA) — mainly through improved operating conditions, such as the evolution and diversification of the Georgian economy which could result in an improved Macro Profile, and a substantial reduction in loan and deposit dollarisation — and an upgrade in the rating of the Georgian government.

Downward pressure on Bank of Georgia's ratings could develop in case (1) of a material rise in problem loans, and, therefore, credit costs beyond 3% over an extended period, which would hurt the bank's bottom-line profitability, or (2) the bank's capital metrics failing to increase in line with higher capital requirements. A significant deterioration in the domestic operating conditions in Georgia, as reflected in our Macro Profile for the country, would also strain the bank's ratings. There could also be negative pressure on the bank's deposit ratings and senior unsecured rating if we believe that the government's willingness to provide support, in case of need, has diminished.

-- TBC Bank

There is limited upward rating pressure on the bank's deposit ratings and its foreign-currency senior unsecured rating because they are already in line with Georgia's sovereign rating. Upward rating pressure would require both an improvement in the bank's standalone assessment (BCA) — mainly through improved operating conditions, such as the evolution and diversification of the Georgian economy, which could result into a higher Macro Profile and a substantial reduction in loan and deposit dollarisation — and an upgrade in the Georgian government's rating.

Downward pressure on TBC Bank's ratings could develop as a result of a rise in problem loans, and hence credit costs over an extended period, which would hurt the bank's bottom-line profitability, or if the bank's capital metrics do not increase in line with higher capital requirements. A material deterioration in the domestic operating conditions in Georgia, as described in our Macro Profile for the country, would also lead to a downgrade. The bank's ratings could also be downgraded if we believe that the government's willingness to provide support, in case of need, has diminished.

-- Liberty Bank

Upward rating pressure would require an improvement in Liberty Bank's standalone financial profile mainly through a seasoning of the bank's loan portfolio through an economic cycle with an asset quality performance that is in line with its larger Georgian peers, demonstrated stable recurring profitability from the bank's new business model that is also in line with local peers, while maintaining adequate capitalisation, well above regulatory minima.

Downward pressure on Liberty Bank's rating could develop from a failure to sustain risk-adjusted profitability in line with recent performance, or, if asset risk in the bank's portfolio increases materially because of (1) credit concentrations that are higher than peers; (2) loan growth above the market average; and (3) asset quality deterioration in the corporate book beyond what we had observed in the past for rated domestic peers. There could also be negative pressure on the bank's ratings if capital metrics do not increase in line with higher capital requirements. A material deterioration in the domestic operating conditions in Georgia, as described in our Macro Profile for the country, would also lead to a downgrade. The bank's long-term ratings could also be downgraded if we believe that the government's willingness to provide support, in case of need, has diminished. For example from diminished systemic importance of the bank.

LIST OF AFFECTED RATINGS

..Issuer: JSC Bank of Georgia

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed ba3

....Baseline Credit Assessment, Affirmed ba3

....Short-term Counterparty Risk Assessment, Affirmed NP(cr)

....Long-term Counterparty Risk Assessment, Affirmed Ba2(cr)

....Short-term Counterparty Risk Ratings, Affirmed NP

....Long-term Counterparty Risk Ratings, Affirmed Ba2

....Short-term Bank Deposit Ratings, Affirmed NP

....Long-term Bank Deposit Ratings, Affirmed Ba2, Outlook Remains Stable

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook Remains Stable

Outlook Action:

....Outlook, Remains Stable

..Issuer: JSC TBC Bank

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed ba3

....Baseline Credit Assessment, Affirmed ba3

....Short-term Counterparty Risk Assessment, Affirmed NP(cr)

....Long-term Counterparty Risk Assessment, Affirmed Ba2(cr)

....Short-term Counterparty Risk Ratings, Affirmed NP

....Long-term Counterparty Risk Ratings, Affirmed Ba2

....Short-term Bank Deposit Ratings, Affirmed NP

....Long-term Bank Deposit Ratings, Affirmed Ba2, Outlook Remains Stable

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook Remains Stable

Outlook Action:

....Outlook, Remains Stable

..Issuer: Liberty Bank JSC

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed b1

....Baseline Credit Assessment, Affirmed b1

....Short-term Counterparty Risk Assessment, Affirmed NP(cr)

....Long-term Counterparty Risk Assessment, Affirmed Ba2(cr)

....Short-term Counterparty Risk Ratings, Affirmed NP

....Long-term Counterparty Risk Ratings, Affirmed Ba2

....Short-term Bank Deposit Ratings, Affirmed NP

....Long-term Bank Deposit Ratings, Affirmed Ba3, Outlook Remains Stable

Outlook Action:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Effie Tsotsani
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Henry MacNevin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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