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Rating Action:

Moody's downgrades ratings of six Belarusian banks

22 Jul 2011

The rating actions follow a sovereign downgrade of Belarus

London, 22 July 2011 -- Moody's Investors Service has today downgraded to B3, from B2, the long-term local currency deposit ratings of five Belarusian banks: (i) Belarusbank, (ii) Belagroprombank, (iii) Belinvestbank, (iv) Minsk Transit Bank and (v) Bank Moscow-Minsk and simultaneously placed these ratings under review for further downgrade. Moody's also downgraded to B1, from Ba3, the long-term local currency deposit rating of Belpromstroibank and revised its outlook to negative.

Moody's also placed on review for downgrade the standalone E+ Bank Financial Strength Ratings (BFSRs) of Belarusbank, Belagroprombank, Belinvestbank, Bank Moscow-Minsk and Minsk Transit Bank, and changed the outlook on the E+ BFSR of Belpromstroibank to negative.

At the same time, Moody's also downgraded to Caa1, from B3, the long-term foreign currency deposit ratings of the six Belarusian banks and placed these ratings under review for downgrade.

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

Today's downgrades were prompted by:

1. The elevated risks in Belarus' operating environment and Moody's expectation that these risks will negatively affect the banking system's financial fundamentals, most notably liquidity and asset quality.

2. A lowering of Moody's assessment of the government's capacity to provide systemic support to the three state-owned banks (Belarusbank, Belagroprombank, Belinvestbank), in light of the downgrade of Belarus' ratings to B3 from B2 (on 21 July 2011), and the placing of the government's ratings under review for further downgrade.

3. The downgrade of the country's foreign-currency bank deposit ceiling to Caa1 from B3, which affected the foreign currency deposit ratings of all rated banks.

RATINGS RATIONALE

Deteriorating operating environment

Today's rating actions reflect the increased challenges in the operating environment that are expected to affect the banks' financial fundamentals, most notably: asset quality, liquidity and profitability. For the three state-owned Belarus banks, the downgrade also reflects the possibility of reduction in ongoing capital and liquidity support by the government given its weakening financial capabilities.

Liquidity considerations

In Moody's opinion, liquidity pressure is likely to materialise mostly as a result of the outflow of retail depositors, as the Belarus banking system has already lost over 20% of foreign currency deposits since year-end 2010 and Moody's expects this trend to continue, at least in the near term. The majority of foreign currency liquidity is kept with the central bank (National Bank of Belarus) at long maturities, thereby undermining the foreign currency liquidity of the banking system. Moody's expects that any escalation of foreign currency deposit outflows will likely result in significant liquidity problems which could result in deposit freeze or mandatory conversion at the designated exchange rate.

Asset quality considerations

Moody's expects that asset quality of the six Belarus banks will be adversely affected by (i) the sharp local-currency devaluation (by over 60%) against the US dollar since year-end 2010, thus affecting the ability of foreign-currency borrowers to repay their debt; (ii) the reduction of real loan growth and government spending; (iii) the lack of foreign currency available for the corporate sector, arising from the balance of payments crisis; and (iv) borrowers' exposure to rising interest rates as government subsidies will be reduced. The increase in the level of problem loans will negatively affect the capital positions of Belarus banks, which will likely require external recapitalisation in the medium term.

Profitability considerations

Moody's also expects the profitability of the six Belarus banks to be significantly affected by the increase in loan loss provisions and the reduction in business activity in response to general deceleration of economic activity.

FACTORS TO BE CONSIDERED IN REVIEW

The ratings of Belarusbank, Belagroprombank, Belinvestbank, Bank Moscow-Minsk and Minsk Transit Bank were placed on review for downgrade. In conjunction with the ongoing sovereign review, this review will focus on:

1) The potential impact of economic deterioration on the banking system, particularly on the banking system's liquidity and asset quality. This would be reflected in further deterioration in loan portfolios. The banks' ability to maintain their funding and liquidity profiles -- especially in foreign currency -- will also be an essential focus in Moody's review. The extent of foreign currency deposit outflows will play a key role in determining the timing of the resolution of review and the magnitude of any further downgrades. Moody's notes that the country's ability to obtain international funding to finance its balance of payments imbalance constitutes an important element in restoring confidence and stemming deposit outflows.

2) The review for downgrade of Bank Moscow-Minsk will also focus on the potential ability and willingness of the parent (Bank of Moscow) to provide both solvency and liquidity support in case of need, given its difficult financial position and intermediary stage of incorporation into VTB Group.

Belpromstroibank's ratings carry a negative outlook

The negative outlook on the E+ BFSR (mapping to B3 on the long-term scale) of Belpromstroibank reflects Moody's opinion that although the bank's credit quality will also be pressured by adverse macroeconomic developments in Belarus due to their system-wide nature, the ongoing support from its parent -- Russia's Sberbank (A3/Prime-2/D+, stable outlook) -- is likely to be maintained at sufficient level and to help the bank to better withstand the crisis in comparison with other Belarusian banks.

The downgrade of Belpromstroibank's long-term local currency deposit rating to B1 reflects the lowering of its standalone credit strength to the B3 level. At the same time, the local currency deposit rating continues to incorporate Moody's assessment of a very high probability of extraordinary parental support from Sberbank. Moody's has maintained its parental support assumptions due to the following factors: (i) significant strategic fit of the subsidiary to the parent and, overall, high importance of the Belarus market for the Russian government which is Sberbank's majority shareholder; (ii) Sberbank's high commitment to support its Belarusian subsidiary; (iii) the potential cost of reputational damage to Sberbank (if support is not forthcoming) is greater than the extent of any potential support package (which would be relatively small compared with Sberbank's asset size). After Sberbank acquired a majority stake in Belpromstroibank, the parent adopted an ambitious capital and funding plans towards its subsidiary, which it has been implementing.

Bank Moscow-Minsk no longer receives an uplift from parental support

The downgrade of Bank Moscow-Minsk's long-term local currency deposit rating to B3 from B2 is driven by the lowering of its standalone credit strength to the B3 level, whereby the moderate parental support assumptions from its parent -- the Bank of Moscow (E+ BFSR, mapping to B2 on the long-term scale) are not sufficient to ensure a rating uplift from its standalone credit strength.

DOWNGRADE OF FOREIGN CURRENCY DEPOSIT RATINGS DUE TO LOWERING OF COUNTRY CEILING

The downgrade of all six rated Belarus banks' long-term foreign currency deposit ratings is due to the recent downgrade of the country's foreign currency deposit ceiling to Caa1 from B3. As a result, all foreign currency deposit ratings remain constrained by the corresponding ceiling at Caa1, which reflects moratorium risks on foreign currency deposits that currently exist in Belarus within the context of declining foreign currency assets held by the National Bank of Belarus.

Moody's highlights that the review for downgrade on the six Belarusian banks' long-term foreign currency deposit ratings reflects the significant downside risks that the foreign currency crisis in Belarus will escalate, thus increasing moratorium risks on foreign currency deposits.

BANK RATINGS AFFECTED BY TODAY'S RATING ACTION:

Belarusbank:

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

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

- E+ BFSR and long-term ratings placed on review for downgrade

Belagroprombank:

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

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

- E+ BFSR and long-term ratings placed on review for downgrade.

Belinvestbank:

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

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

- E+ BFSR and long-term ratings placed on review for downgrade.

Belpromstroibank:

- Long-term local currency deposit rating downgraded to B1 from Ba3

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

- E+ BFSR and local currency deposit rating carry a negative outlook, while the long-term foreign currency deposit rating has been placed on review for downgrade.

Bank Moscow-Minsk:

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

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

- E+ BFSR and long-term ratings placed on review for downgrade.

Minsk Transit Bank:

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

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

- E+ BFSR and long-term ratings placed on review for downgrade.

PRINCIPAL METHODOLOGIES

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

All banks affected by today's review are headquartered in Minsk, Belarus:

- Belarusbank reported audited total (IFRS) assets of US$15.0 billion as of end-December 2010.

- Belagroprombank reported audited total (IFRS) assets of US$9.4 billion as of end-December 2010.

- Belpromstroibank reported audited total (IFRS) assets of US$2.9 billion as of end-December 2010.

- Belinvestbank reported audited total (IFRS) assets of US$2.3 billion as of end-December 2010.

- Bank Moscow-Minsk reported audited total (IFRS) assets of US$632.7 million as of end-December 2010.

- Minsk Transit bank reported audited total (IFRS) assets of US$237.3 million as of end-December 2010.

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 rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not 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 entity, obligation or credit satisfactory for the purposes of issuing a rating.

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.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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 entity or its related third parties within the three years preceding the credit rating action. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Moscow
Vladlen Kuznetsov
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's downgrades ratings of six Belarusian banks
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