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Rating Action:

Moody's places the ratings of three Belarus banks on review for downgrade

01 Sep 2020

London, 01 September 2020 -- Moody's Investors Service, ("Moody's") today placed all long-term ratings and assessments of Belarusbank, Belagroprombank JSC (Belagroprombank) and Belinvestbank on review for downgrade. The outlooks on the long-term deposit ratings, as well as the issuer outlooks, were changed to review down from stable. Concurrently, Moody's affirmed two banks' short-term Counterparty Risk (CR) Assessments of Not Prime(cr) and short-term Counterparty Risk Ratings (CRRs) of Not Prime (NP), as well as three banks' short-term deposit ratings of Not Prime (NP).

For a detailed list of ratings affected, please refer to the end of this Press Release.

RATINGS RATIONALE

THE REVIEW FOR DOWNGRADE REFLECTS POTENTIAL FOR POLITICAL INSTABILITY TO SPILL OVER INTO LIQUIDITY AND ASSET-QUALITY RISKS

The rating action was driven by social risk considerations, namely, the risks for the banking sector's liquidity stemming from the political instability. Since the country's presidential elections on 9 August, there has been widespread social unrest in Belarus (B3 stable). This heightened political instability is reflected in the interbank market and the behaviour of some depositors which increases pressure on bank liquidity. In addition, prolonged political turmoil would be disruptive for economic activity, already damaged by the coronavirus outbreak, and thus cause a more significant than expected deterioration in asset quality in the coming months.

The review for downgrade of the banks' ratings thus reflects the potential for political instability to spill over into both liquidity and asset-quality risks for banks.

On 12 August, the country's central bank, the National Bank of the Republic of Belarus (NBRB), said that banks' retail depositors increased withdrawals and moved cash savings to foreign currencies from the Belarusian ruble. The magnitude of the outflows is currently moderate, but if intensified, such outflows could have a material impact on banks' standalone creditworthiness, given the importance of retail customer deposits as one of the banks' key funding sources. These rising liquidity risks are partially mitigated by the three banks' solid liquidity cushions and the fact that a large portion of Belarus banks' retail deposits have longer maturities and cannot be withdrawn on demand. The NBRB will continue to provide liquidity to the system, and these three state-owned banks are likely to benefit from extraordinary support from the government of Belarus in case of need. However, this does not fully mitigate the risk of currency and maturity mismatches, because the banks' foreign-currency (FX) liquid assets do not fully cover their FX short-term liabilities. Moreover, the NBRB and the government are less able to support the banking system with FX liquidity because the sovereign has only modest foreign-currency reserves.

Moody's further expects the three banks' problem loans to increase in the coming months, as the disruption to economic activity from the political turmoil and strikes adds to the pressure resulting from the coronavirus outbreak. In particular, the performance of foreign-currency loans will likely deteriorate as the borrowers' repayment capacity will be undermined by the near-30% depreciation of the Belarusian ruble since the beginning of the year.

SPECIFIC ANALYTICAL FACTORS FOR THE AFFECTED BANKS

-- BELARUSBANK

The review for downgrade of Belarusbank's long-term ratings and assessments reflects the potential for political instability to spill over into liquidity and asset-quality risks for the bank. Belarusbank's liquidity cushion, while solid, is the lowest among the three banks. Its asset-risk profile is closely linked to the sovereign credit risk, given the bank's high direct and indirect credit exposure to the sovereign via government bonds and loans to state-owned companies.

Belarusbank's B3 long-term local currency deposit rating incorporates its b3 (review down) Baseline Credit Assessment (BCA) and Moody's assessment of a very high probability of government support, which, however, results in no rating uplift. Belarusbank's long-term foreign currency deposit rating of Caa1 is capped by Belarus' foreign currency deposit ceiling of Caa1.

-- BELAGROPROMBANK JSC

The review for downgrade of Belagroprombank's long-term ratings and assessments reflects the potential for political instability to spill over into liquidity and asset-quality risks for the bank. Belagroprombank's liquidity cushion is only marginally higher than that of Belarusbank, while its asset-quality is weaker, despite similarly strong linkage to the sovereign credit risk.

Belagroprombank's B3 long-term local currency deposit rating incorporates its caa1 (review down) BCA and Moody's assessment of a very high probability of government support, which provides a one-notch rating uplift to the local currency deposit rating from the BCA. Belagroprombank's long-term foreign currency deposit rating of Caa1 is capped by Belarus' foreign currency deposit ceiling of Caa1.

-- BELINVESTBANK

The review for downgrade of Belinvestbank's long-term ratings and assessments reflects the potential for political instability to spill over into liquidity and asset-quality risks for the bank. Compared to its peers, the bank has a larger liquidity cushion, lower problem loans and higher loan loss reserves coverage, but weaker earnings generation. Its exposure to the sovereign and state-owned enterprises has recently reduced, but remains substantial.

Belinvestbank's B3 long-term local currency deposit rating incorporates its caa1 (review down) BCA and Moody's assessment of a high probability of government support, which provides a one-notch rating uplift. Belinvestbank's long-term foreign currency deposit rating of Caa1 is capped by Belarus' foreign currency deposit ceiling of Caa1.

THE FOCUS OF THE REVIEW

The review for downgrade on the three banks' ratings will focus on the stability of the country and its financial system, including but not limited to the magnitude of deposit outflows, their impact on the banks' liquidity positions and their ability to provide customers with unrestricted access to their funds.

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

A positive rating action on the three banks' ratings is currently unlikely, given the review for downgrade. However, the ratings may be confirmed if there are no substantial deposit outflows, their liquidity remains solid and credit losses do not result in a material deterioration of the banks' capital positions.

A significant deterioration of the banks' liquidity or capital positions would result in a downgrade of their BCAs. The banks' long-term deposit ratings could be downgraded in case of severe deterioration of their standalone credit profiles, restrictions on payments to customers or a downgrade of the sovereign rating.

LIST OF AFFECTED RATINGS

..Issuer: Belagroprombank JSC

On Review for Downgrade:

.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently caa1

.... Baseline Credit Assessment, Placed on Review for Downgrade, currently caa1

.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently B3(cr)

.... Long-term Counterparty Risk Rating, Placed on Review for Downgrade, currently B3

.... Long-term Bank Deposits (Local Currency), Placed on Review for Downgrade, currently B3, Outlook Changed To Rating Under Review From Stable

.... Long-term Bank Deposits (Foreign Currency), Placed on Review for Downgrade, currently Caa1, Outlook Changed To Rating Under Review From Stable

Affirmations:

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

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

.... Short-term Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Belinvestbank

On Review for Downgrade:

.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently caa1

.... Baseline Credit Assessment, Placed on Review for Downgrade, currently caa1

.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently B3(cr)

.... Long-term Counterparty Risk Rating, Placed on Review for Downgrade, currently B3

.... Long-term Bank Deposits (Local Currency), Placed on Review for Downgrade, currently B3, Outlook Changed To Rating Under Review From Stable

.... Long-term Bank Deposits (Foreign Currency), Placed on Review for Downgrade, currently Caa1, Outlook Changed To Rating Under Review From Stable

Affirmations:

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

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

.... Short-term Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Belarusbank

On Review for Downgrade:

.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently b3

.... Baseline Credit Assessment, Placed on Review for Downgrade, currently b3

.... Long-term Bank Deposits (Local Currency), Placed on Review for Downgrade, currently B3, Outlook Changed To Rating Under Review From Stable

.... Long-term Bank Deposits (Foreign Currency), Placed on Review for Downgrade, currently Caa1, Outlook Changed To Rating Under Review From Stable

Affirmations:

.... Short-term Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. 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 unsolicited.

a.With Rated Entity or Related Third Party Participation: NO

b.With Access to Internal Documents: NO

c.With Access to Management: NO

For additional information, 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Svetlana Pavlova, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yaroslav Sovgyra, CFA
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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