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Rating Action:

Moody's downgrades 12 Ukrainian financial institutions; negative outlooks maintained on all banks

07 Dec 2012

Actions follow sovereign action

London, 07 December 2012 -- Moody's Investors Service has today lowered the standalone credit assessments, and downgraded the debt and deposits ratings, as well as National Scale Ratings (NSRs) of 11 banks and one leasing company in Ukraine. Negative outlooks have been maintained on all affected banks' ratings.

All the rating actions were prompted by Moody's downgrade on 5 December 2012 of the Ukrainian government rating to B3 from B2 and the related adjustments to the country's ceilings, mainly, (1) foreign-currency bank deposit ceiling to Caa1 from B3; (2) local-currency bank deposit and bond ceiling to B2 from Ba1; and (3) foreign-currency bond ceiling to B3 from B1. These ceilings cap the maximum ratings that can be assigned to banks and other issuers domiciled in the country. The negative outlook on the sovereign ratings was maintained. http://www.moodys.com/research/Moodys-downgrades-Ukraines-government-bond-rating-to-B3-from-B2--PR_261348

A full list of affected ratings and bank-specific ratings rational is included at the end of this press release.

RATINGS RATIONALE

- STANDALONE CREDIT ASSESSMENTS

Moody's says the downward revision of the standalone credit assessments of nine of the 11 Ukrainian banks takes into account (1) their direct or indirect exposures to domestic sovereign debt relative to their capital cushions; (2) the degree to which their businesses depend on the domestic macroeconomic and financial environment; and (3) the extent of their reliance on market-based funding, which is typically more confidence-sensitive. Due to these factors, the standalone credit assessments of these banks were lowered by one notch.

The standalone credit assessments of eight of the nine Ukrainian banks were lowered to b3 -- in line with Ukraine's government debt rating, reflecting Moody's view that their creditworthiness - for the three factors listed above - is highly correlated to that of their national government. The standalone credit assessment of one bank, Privatbank, was lowered to b2, which is one notch higher than Ukraine's government rating. Moody's says that this exception reflects factors that help mitigate the credit risk correlations with the domestic government, including low level of sovereign debt, negligible reliance on market funding and a moderate level of business diversification outside of Ukraine.

- LOCAL-CURRENCY DEPOSIT AND DEBT RATINGS

The local-currency deposit and debt ratings of six of the nine Ukrainian banks (whose standalone credit assessments were lowered) were consequently downgraded by one notch, in line with the downgrade of their standalone credit assessments. Four more banks' local currency debt and deposit ratings, which receive notching uplift from parental support, were downgraded by one to three notches due to the downgrade of Ukraine's local currency deposit and debt ceilings to B2 from Ba1. All of these banks' local-currency deposit and debt ratings carry a negative outlook, in line with the sovereign ratings outlook.

- FOREIGN-CURRENCY DEPOSIT AND DEBT RATINGS

The lowering of Ukraine's foreign-currency deposit and debt ceilings to Caa1 and B3, respectively, led to the downgrade of eleven banks' foreign-currency deposit ratings to Caa1, and four banks' foreign-currency senior unsecured debt ratings to B3. All of these banks' foreign-currency deposit and debt ratings carry a negative outlook, in line with the sovereign ratings outlook.

WHAT COULD MOVE THE RATINGS UP/DOWN

As the key drivers of today's actions are mostly structural in nature, Moody's considers that upwards rating pressure is unlikely in the near term. In the long term, a combination of an improving operating environment, declining sovereign-risk exposures and increasing cross-border diversification may exert upwards pressure on the Ukrainian banks' ratings. An improvement in the credit risk profile of the national government could also have positive rating implications. Conversely, deterioration in the banks' operating environments and/or a weakening of their standalone financial fundamentals could exert downwards pressure on the ratings.

LIST OF RATING ACTIONS

The following rating actions were taken:

PRIVATBANK

The one-notch lowering of Privatbank's standalone credit assessment to b2, one notch above Ukraine's B3 sovereign rating, reflects the bank's relative resilience to Ukrainian sovereign risk, as demonstrated by the bank's (1) lack of material exposure to Ukraine's government bonds, representing r around 1% of the bank's Tier 1 capital; (2) a moderate degree of business diversification outside of Ukraine (foreign assets account for around a quarter of consolidated assets); and (3) limited dependence on wholesale debt markets, with wholesale funding accounting for around 12% of total non-equity funding. The negative outlook assigned to the bank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- Bank financial strength rating (BFSR) unchanged at E+, now equivalent to a b2 standalone credit assessment (formerly b1)

- Long-term local-currency deposit rating downgraded to B2 from B1

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term foreign-currency senior unsecured debt rating downgraded to B3 from B1

- Long-term foreign-currency subordinated debt rating downgraded to B3 from B2

- Stable outlook maintained on the BFSR; negative outlook on all the other long-term global-scale ratings

- National Scale Rating (NSR) downgraded to A3.ua from Aa3.ua

OTP BANK (UKRAINE)

The one-notch lowering of the standalone credit assessment of OTP Bank (Ukraine) ("OTP Ukraine") to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for over 50% of the bank's Tier 1 capital; and (2) the geographical concentration of the bank's business in Ukraine's weak and volatile operating environment.

The local-currency deposit rating was downgraded by two notches to B2 and is constrained by Ukraine's ceiling for local currency deposits. The rating incorporates a one-notch uplift from the standalone credit assessment, reflecting Moody's assumptions of the high probability of parental support from OTP Hungary, which fully controls OTP Ukraine. The negative outlook assigned to OTP Ukraine's deposit ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B2 from Ba3

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to A3.ua from Aa1.ua

UKREXIMBANK

The one-notch lowering of Ukreximbank's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for over 50% of the bank's Tier 1 capital; (2) geographical concentration in Ukraine's weak and volatile operating environment; and (3) significant refinancing risks in the medium term, as foreign-market borrowings account for a third of Ukreximbank's total funding.

The bank's deposit and debt ratings were downgraded by one notch to reflect the lowering of the standalone credit assessment. These ratings do not incorporate any uplift from systemic support, reflecting the limited capacity of the country's public institutions to provide such support. The negative outlook assigned to Ukreximbank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B3 from B2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term local-currency senior unsecured debt rating downgraded to B3 from B2

- Long-term foreign-currency senior unsecured debt rating downgraded to B3 from B2

- Long-term foreign-currency subordinated debt rating downgraded to Caa1 from B3

- Negative outlook on all long-term global-scale ratings

RAIFFEISEN BANK AVAL

The one-notch lowering of Raiffeisen Bank Aval's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) large exposure to Ukraine's government bonds, which account for over 100% of the bank's Tier 1 capital; and (2) the geographical concentration of the bank's business in Ukraine's weak and volatile operating environment.

The local currency deposit rating was downgraded by two notches to B2 and is constrained by Ukraine's ceiling for local currency deposits. The rating incorporates one-notch uplift from the standalone credit assessment, reflecting Moody's assumptions of the high probability of support from its parent Raiffeisen Bank International. The negative outlook assigned to Raiffeisen Bank Aval's deposit ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B2 from Ba3

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to A3.ua from Aa1.ua

SUBSIDIARY BANK SBERBANK OF RUSSIA

The one-notch lowering of Subsidiary Bank Sberbank of Russia's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for around 50% of the bank's Tier 1 capital; (2) large exposure to the Ukrainian state-owned companies, which account for over 100% of the bank's Tier 1 capital; and (3) geographical concentration in Ukraine's weak and volatile operating environment.

The local currency deposit rating was downgraded by three notches to B2 and is constrained by Ukraine's ceiling for local currency deposits. The rating incorporates one-notch uplift from the standalone credit assessment, reflecting Moody's assumptions of the high probability of support from its parent Sberbank of Russia. The negative outlook assigned to Subsidiary Bank Sberbank of Russia's deposit ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B2 from Ba2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term local-currency senior unsecured debt rating downgraded to B2 from Ba2

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to A3.ua from Aa1.ua

FIRST UKRAINIAN INTERNATIONAL BANK

The one-notch lowering of First Ukrainian International Bank's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for nearly 70% of the bank's Tier 1 capital; and (2) geographical concentration in Ukraine's weak and volatile operating environment.

The bank's deposit and debt ratings were downgraded by one notch to reflect the lowering of the standalone credit assessment. The negative outlook assigned to the bank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B3 from B2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term foreign-currency senior unsecured debt rating downgraded to B3 from B2

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to Baa3.ua from A3.ua

PIVDENNYI BANK

The one-notch lowering of Pivdennyi Bank's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. Despite the bank's limited exposure to Ukraine's sovereign debt which account for around 15% of the bank's Tier 1 capital, Moody's believes that Pivdennyi Bank's credit profile is likely to be adversely affected by the weak and volatile operating environment in Ukraine, where most of its business is concentrated. The negative outlook assigned to Pivdennyi Bank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now mapping to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B3 from B2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term local-currency senior unsecured debt rating downgraded to (P)B3 from (P)B2

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to Baa3.ua from A2.ua

SAVINGS BANK OF UKRAINE

The one-notch lowering of Savings Bank of Ukraine's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for over 50% of the bank's Tier 1 capital; (2) large exposure to the Ukrainian state-owned companies, which account for over 100% of the bank's Tier 1 capital; and (3) geographical concentration in Ukraine's weak and volatile operating environment.

The bank's deposit and debt ratings were downgraded by one notch to reflect the lowering of the standalone credit assessment. These ratings do not incorporate any uplift from systemic support, reflecting the limited capacity of the country's public institutions to provide such support. The negative outlook assigned to the bank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B3 from B2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term local-currency senior unsecured debt rating downgraded to B3 from B2

- Long-term foreign-currency senior unsecured debt rating downgraded to B3 from B2

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to Baa3.ua from A3.ua

CREDIT DNEPR BANK

The one-notch lowering of Credit Dnepr Bank's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for around 30% of the bank's Tier 1 capital; and (2) geographical concentration in Ukraine's weak and volatile operating environment. The negative outlook assigned to Credit Dnepr Bank's deposit ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, now equivalent to a b3 standalone credit assessment (formerly b2)

- Long-term local-currency deposit rating downgraded to B3 from B2

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to Baa3.ua from A3.ua

PROMINVESTBANK

The one-notch lowering of Prominvestbank's standalone credit assessment to b3, in line with Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. This reflects the bank's (1) sizeable exposure to Ukraine's government bonds, which account for around one third of the bank's Tier 1 capital; (2) large exposure to the Ukrainian state-owned companies, which account for about 100% of the bank's Tier 1 capital; and (3) geographical concentration in Ukraine's weak and volatile operating environment.

The local currency deposit rating was downgraded by one notch to B2 and is constrained by Ukraine's ceiling for local currency deposits. The rating incorporates one-notch uplift from the standalone credit assessment, reflecting Moody's assumptions of the high probability of support from its parent Vnesheconombank. The negative outlook assigned to Prominvestbank's deposit and debt ratings is in line with the negative outlook on Ukraine's government debt ratings.

- BFSR unchanged at E+, equivalent to a b3 standalone credit assessment

- Long-term local-currency deposit rating downgraded to B2 from B1

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Long-term local-currency senior unsecured debt rating downgraded to B2 from B1

- Negative outlook on all long-term global-scale ratings

- NSR downgraded to A3.ua from Aa3.ua

UKRINBANK

The change of the outlook to negative from stable on Ukrinbank's standalone and deposit ratings, in line with the negative outlook on Ukraine's B3 sovereign rating, is driven primarily by the linkages between the bank's credit profile and sovereign credit risk. Despite the bank's insignificant exposure to Ukraine's sovereign debt and state-owned enterprises, Ukrinbank's credit profile is likely to be adversely affected by the weak and volatile operating environment in Ukraine, where all of its business is concentrated. In particular, deteriorating economic conditions will likely exert significant downside pressure on the bank's asset quality, profitability and capitalisation.

- BFSR unchanged at E+, equivalent to a b3 standalone credit assessment

- Long-term foreign-currency deposit rating downgraded to Caa1 from B3

- Negative outlook on all long-term global-scale ratings

VAB BANK

VAB Bank's standalone credit assessment and deposit ratings are already below the B3 sovereign ratings and remain unchanged .

- BFSR unchanged at E, equivalent to a caa1 standalone credit assessment

- The outlook on the Caa1 long-term foreign-currency deposit rating was changed to negative from positive

BANK FINANCE AND CREDIT

Bank Finance and Credit's standalone credit assessment and deposit ratings are already below the B3 sovereign ratings and remain unchanged.

- BFSR unchanged at E, equivalent to a caa1 standalone credit assessment

- The outlook on the Caa1 long-term foreign-currency deposit rating was changed to negative from stable

RAIFFEISEN LEASING AVAL

The rating action on Raiffeisen Leasing Aval's supported national scale ratings was triggered by a downgrade of the deposit ratings of its parent Raiffeisen Bank Aval.

- Long-term national scale issuer rating downgraded to Baa3.ua from Aa2.ua

- Long-term national scale corporate family rating downgraded to Baa3.ua from Aa2.ua

- Long-term national scale senior unsecured debt rating downgraded to Baa3.ua from Aa2.ua

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Moody's Consolidated Global Bank Rating Methodology, published in June 2012, and Mapping Moody's National Scale Ratings to Global Scale Ratings, published in August 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ua" for Ukraine. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

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

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Armen L. Dallakyan
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves?J?Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades 12 Ukrainian financial institutions; negative outlooks maintained on all banks
No Related Data.
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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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