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Rating Action:

Moody's takes rating actions on 7 Ukrainian banks and one leasing company

Global Credit Research - 24 Nov 2015

London, 24 November 2015 -- Moody's Investors Service has today taken rating actions on seven Ukrainian banks and one leasing company. These follow the recent improvement in the creditworthiness of the Government of Ukraine, reflected in Moody's upgrade of Ukraine's sovereign bond rating to Caa3 (stable outlook) from Ca (negative outlook) (please see ' Moody's upgrades Ukraine's sovereign rating to Caa3, outlook stable ' dated 19 November 2015). Moody's has changed the outlooks to stable from negative on all affected banks' ratings.

Specifically, Moody's has:

(1) Upgraded the Baseline Credit Assessments (BCAs) of three banks;

(2) Upgraded the long-term Local Currency (LC) deposit ratings of four banks and affirmed those of three others;

(3) Affirmed the Foreign Currency (FC) deposit ratings of seven banks (capped by the FC bank deposit ceiling of Ca);

(4) Affirmed the LC and FC short-term deposit ratings of seven banks and provisional other short term rating of one bank;

(5) Upgraded the long-term LC senior unsecured debt rating of one bank and provisional LC senior unsecured MTN of one bank;

(6) Upgraded the long-term FC senior unsecured debt ratings of two banks and affirmed that of one bank;

(7) Affirmed the FC subordinated debt ratings of two banks;

(8) Upgraded the National Scale Ratings (NSRs) of five banks and one leasing company;

(9) Upgraded the long-term Counterparty Risk Assessments (CR Assessments) of two banks and affirmed those of five banks; affirmed short-term CR Assessments of seven others.

RATINGS RATIONALE

OPERATING ENVIRONMENT

The macro profile for Ukrainian banks remains "Very Weak-" as Ukraine continues to face highly fragile macroeconomic conditions and the country's adverse operating environment will continue to exert pressure on Ukrainian banks' financial fundamentals. As the economy is only now beginning to recover from a deep recession, after an estimated cumulative contraction of nearly 20% in real GDP in 2014-15, Moody's expects that Ukrainian banks' asset quality and capital positions, which have already come under significant pressure, will erode further over the next 12 months, although the pace of deterioration will likely slow down, limiting the downside risk. Ukrainian banks' funding and liquidity profiles remain fragile, but will likely face reduced pressure following the stabilization of the currency (after a significant depreciation) and reduced, though still high, geopolitical tensions. Recently completed distressed debt restructurings by the largest banks have reduced refinancing risk supporting those banks' funding and liquidity.

--- BANK SPECIFIC FACTORS

-- PRIVATBANK

The upgrade of PrivatBank's LC deposit rating to Caa3 from Ca, as well as the affirmation of the bank's FC senior unsecured debt rating of Ca and FC subordinated debt rating of C reflect (1) the affirmation of the bank's standalone BCA at ca; and (2) Moody's assessment of expected losses for the bank's depositors and creditors in the event of default. In such a scenario, the rating agency believes that the expected losses for depositors would be lower compared to those of senior unsecured and especially subordinated creditors.

The bank's ca standalone BCA remains constrained by the acute pressure on its liquidity and capitalisation and Moody's expectation that the bank's reliance on liquidity and funding support from the National Bank of Ukraine will remain high. In November 2015 PrivatBank reached an agreement with its creditors to restructure its $150 million subordinated bonds maturing in February 2016. Moody's expects that the bank's capital adequacy will be under pressure from rising loan loss charges, given the relatively low coverage of problem loans - around 35%.

The bank's FC deposit rating is affirmed at Ca , as it remains constrained by the country's FC deposit ceiling of Ca.

-- SAVINGS BANK OF UKRAINE

Moody's upgrades of state-owned Savings Bank of Ukraine's long-term LC deposit and long-term LC and FC debt ratings to Caa3 with a stable outlook from Ca, the bank's BCA to caa3 from ca and bank's deposit and senior unsecured NSRs to Caa2.ua from Ca.ua are driven by the upgrade of the sovereign rating and reflect: (1) the high inter-linkage between the bank's standalone credit fundamentals and sovereign creditworthiness given the bank's high direct exposure to sovereign debt and bonds guaranteed by the state, and net of provision exposure to state-owned Naftogaz (over 290% of the bank's equity as of June 30, 2015); (2) the recently completed restructuring of the bank's outstanding Eurobonds, reducing refinancing risk; and (3) the bank's adequate liquidity position.

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's FC deposit ceiling of Ca.

-- UKREXIMBANK

Moody's upgrades of state-owned Ukreximbank long-term LC deposit and FC debt ratings to Caa3 from Ca with a stable outlook and the bank's BCA to caa3 from ca are driven by the upgrade of the sovereign rating and reflect: (1) the high inter-linkage between the bank's standalone credit fundamentals and sovereign creditworthiness given the bank's high direct exposure to sovereign debt and bonds guaranteed by the state (over 600% of the bank's equity capital as of June 30, 2015); (2) the recently completed restructuring of the bank's outstanding Eurobonds reducing refinancing risk; and (3) the bank's adequate liquidity position. The affirmation of the bank's FC subordinated debt rating at Ca is driven by the structural subordination of these instruments, which points to higher severity of losses than for senior debt in a default scenario.

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's FC deposit ceiling of Ca.

-- PROMINVESTBANK

The affirmation of Prominvestbank's long-term LC deposit rating at Caa3 , with a stable outlook is driven by the affirmation of the bank's BCA at ca. This reflects Moody's expectation that the bank will remain highly reliant on the extraordinary support of its parent Vnesheconombank (Ba1 negative) to meet its financial obligations and that in the absence of this support, the bank's capital buffer will not be sufficient to absorb expected credit losses. Moody's also expects the bank to continue operating under regulatory forbearance over the next 12-18 months, because its regulatory capital adequacy ratio will likely remain below regulatory minimum of 10%. In addition, the bank's BCA remains constrained by: (1) weak asset quality with a substantial portion of loans originated in eastern regions that were directly affected by the military conflict; (2) very high exposure to loans denominated in foreign currency (over 70% of its loan book as at Q3 2015); and (3) a low capital buffer with a total regulatory capital ratio of 7.0% as at Q3 2015. The bank's long-term LC deposit rating of Caa3 benefits from one notch of uplift from its BCA due to Moody's assessment of moderate probability of parental support from Vnesheconombank, in case of need.

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's FC deposit ceiling of Ca.

The bank's deposit NSR is upgraded to Caa2.ua from Caa3.ua because of reduced downward pressure on the bank's global scale ratings following the upgrade of the sovereign rating.

-- SUBSIDIARY BANK SBERBANK OF RUSSIA

The affirmation of Subsidiary Bank Sberbank of Russia's long-term LC deposit rating at Caa2 with a stable outlook is driven by the affirmation of the bank's BCA at ca. This reflects Moody's expectation that the bank will remain highly reliant on the extraordinary support of its parent Sberbank (deposits Ba2 / senior unsecured Ba1 negative, BCA ba2) to meet its financial obligations, and that in the absence of this support, the bank's capital buffer will not be sufficient to absorb expected credit losses. Moody's also expects that the bank will continue operating under regulatory forbearance over the next 12-18 months, because its regulatory capital adequacy ratio will remain below regulatory minimum of 10%. In addition, the bank's BCA remains constrained by: (1) heightened risks related to the bank's very high exposure to foreign currency denominated loans (over 80% of its loan book as at Q3 2015); (2) its substantial exposure to loans originated in the eastern regions directly affected by the military conflict; and (3) a low capital buffer with a total regulatory capital ratio of 6.8% as at Q3 2015.

The bank's Caa2 long-term LC deposit rating benefits from two notches of uplift from its BCA, owing to Moody's assessment of a high probability of parental support from Sberbank, in case of need.

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's FC deposit ceiling of Ca.

The bank's deposit NSR is upgraded to B2.ua from B3.ua because of reduced downward pressure on the bank's global scale ratings following the upgrade of the sovereign rating.

-- RAIFFEISEN BANK AVAL

Moody's affirmation of Raiffeisen Bank's Aval long-term LC deposit rating of Caa2 with a stable outlook is driven by the affirmation of the bank's BCA of caa3, which reflects the bank's: (1) moderate exposure to foreign currency loans; (2) adequate loss-absorption capacity with total regulatory capital of 13.23 % at Q3 2015 and adequate coverage of problem loans; and (3) adequate liquidity and funding profiles. These features will assist the bank in containing the ongoing negative pressure on its financial fundamentals. In addition, Moody's is not expecting the bank to increase its reliance on funding support from its parent.

The bank's Caa2 LC deposit rating benefits from one notch of uplift from its BCA of caa3, owing to Moody's assessment of a moderate probability of support, in case of need, from its parent, Raiffeisen Bank International AG (deposits Baa2 / senior unsecured Baa2 Negative, BCA ba3).

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's FC deposit ceiling of Ca.

The bank's deposit NSR is upgraded to B2.ua from B3.ua because of reduced downward pressure on the bank's global scale ratings following the upgrade of the sovereign rating.

-- RAIFFEISEN LEASING AVAL

Raiffeisen Leasing Aval is controlled by Raiffeisen Bank Aval and is fully integrated with its parent. The upgrade of the company's NSR to B2.ua mirrors the rating action on its parent's NSR.

-- PIVDENNYI BANK, JSCB

Moody's upgrades Pivdennyi Bank's long-term LC deposit and debt ratings to Caa2/(P)Caa2 from Caa3/(P)Caa3, the bank's BCA to caa2 from caa3 and the bank's deposit and senior unsecured NSRs to B2.ua from Caa3.ua following the sovereign rating action on the Ukraine. The upgrade of the bank's ratings reflects: (1) the significance of its cross-border operations through a subsidiary bank in Latvia, which increased to 45%-50% of the group's assets, thereby reducing the negative effects of the highly adverse macro conditions prevailing in Ukraine; (2) asset-quality indicators that are better than those of its Ukrainian peers, with NPLs (90 days overdue) accounting for 11% of gross loans and total impaired loans at around 23% of the loan book as of H1 2015; and (3) limited wholesale debt repayments and an ample liquidity cushion (at 49.8% of assets at H1 2015 under consolidated IFRS), mainly kept through the Latvian subsidiary bank at other non-resident correspondent banks.

The bank's long-term FC deposit rating is affirmed at Ca stable, as it remains constrained by the country's long-term FC deposit ceiling of Ca.

RATIONALE FOR THE STABLE OUTLOOK

Moody's change in the outlook on Ukrainian bank ratings to stable from negative was driven by the recent improvement in the creditworthiness of the Government of Ukraine, reflected by Moody's upgrade of Ukraine's sovereign bond rating and stabilization of the sovereign outlook, suggesting more limited downside risk for the sovereign ceilings. As most bank ratings remain positioned at the level of the sovereign debt rating or country's foreign and local currency deposit ceilings, their stable outlooks reflect both (1) this more limited downside risk; and (2) limited upward pressure because of the continued sovereign constraint.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's considers that upward pressure on the ratings of all eight Ukrainian financial institutions affected by this rating action is unlikely in the near term given the country's still highly adverse operating environment. However, in the longer term, banks' ratings could be upgraded following an improvement of the country's macro-economic environment, combined with an improvement in banks' standalone credit profiles and/or positive rating action(s) on the sovereign ratings/ceilings. Conversely, negative pressure on the bank's ratings could result from (1) increased volatility in the operating environment, leading to growing pressure on the banks' standalone credit profiles, increasing insolvency risk and/or (2) negative rating action(s) on the sovereign ratings.

THE SPECIFIC RATING ACTIONS IMPLEMENTED TODAY ARE AS FOLLOWS:

--PRIVATBANK

.... Adjusted Baseline Credit Assessment, affirmed at ca

.... Baseline Credit Assessment, affirmed at ca

.... Long-term LC Deposit Ratings, upgraded to Caa3 with a stable outlook from Ca negative

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.... Long-term FC senior unsecured debt rating, affirmed at Ca with a stable outlook

.... Backed Subordinate debt rating, affirmed at C

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Counterparty Risk Assessment, affirmed at Caa3(cr)/Not-Ptime(cr)

.... Outlook, changed to Stable from Negative

-- SAVINGS BANK OF UKRAINE

.Adjusted Baseline Credit Assessment, upgraded to caa3 from ca

.... Baseline Credit Assessment, upgraded to caa3 from ca

.... Long-term LC Deposit Ratings, upgraded to Caa3 with a stable outlook from Ca negative

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.Long-term FC and LC senior unsecured debt ratings, upgraded to Caa3 stable from Ca negative

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Long-term Counterparty Risk Assessment, upgraded to Caa2(cr) from Caa3(cr)

.... Short-term Counterparty Risk Assessment, affirmed Not-Prime(cr)

.NSR long-term LC deposits and NSR LC Senior Unsecured, upgraded to Caa2.ua from Ca.ua

.... Outlook, changed to Stable from Negative

-- UKREXIMBANK

.Adjusted Baseline Credit Assessment, upgraded to caa3 from ca

.... Baseline Credit Assessment, upgraded to caa3 from ca

.... Long-term LC Deposit Ratings, upgraded to Caa3 with a stable outlook from Ca negative

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.Long-term FC senior unsecured debt ratings, upgraded to Caa3 stable from Ca negative

.Long-term FC subordinate debt ratings, affirmed at Ca

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Long-term Counterparty Risk Assessment, upgraded to Caa2(cr) from Caa3(cr)

.... Short-term Counterparty Risk Assessment, Affirmed Not-Prime(cr)

.Outlook, changed to Stable from Negative

-- PROMINVESTBANK

.Adjusted Baseline Credit Assessment, affirmed at caa3

.... Baseline Credit Assessment, affirmed at ca

.... Long-term LC Deposit Ratings, affirmed at Caa3 with a stable outlook

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Counterparty Risk Assessment, affirmed at Caa2(cr)/Not-Prime(cr)

.NSR Long-Term LC deposits, upgraded to Caa2.ua from Caa3.ua

.... Outlook, changed to Stable from Negative

SUBSIDIARY BANK SBERBANK OF RUSSIA

.Adjusted Baseline Credit Assessment, affirmed at caa2

.... Baseline Credit Assessment, affirmed at ca

.... Long-term LC Deposit Ratings, affirmed at Caa2 with a stable outlook

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Counterparty Risk Assessment, affirmed at Caa2(cr)/Not-Prime(cr)

.NSR long-term LC deposits, upgraded to B2.ua from B3.ua

.... Outlook, changed to Stable from Negative

RAIFFEISEN BANK AVAL

.Adjusted Baseline Credit Assessment, affirmed at caa2

.... Baseline Credit Assessment, affirmed at caa3

.... Long-term LC Deposit Ratings, affirmed at Caa2 with a stable outlook

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Counterparty Risk Assessment, affirmed at Caa2(cr)/Not-Prime(cr)

.NSR long-term LC Deposit Rating, upgraded to B2.ua from B3.ua

.... Outlook, changed to Stable from Negative

RAIFFEISEN LEASING AVAL

.NSR Long-Term LC Issuer rating, upgraded to B2.ua from B3.ua

.NSR Long-Term LC Corporate Family Rating, upgraded to B2.ua from B3.ua

PIVDENNYI BANK, JSCB

.Adjusted Baseline Credit Assessment, upgraded to caa2 from caa3

.... Baseline Credit Assessment, upgraded to caa2 from caa3

.... Long-term LC Deposit Ratings, upgraded to Caa2 with a stable outlook from Caa3 negative

.Long-term FC Deposit Ratings, affirmed at Ca with a stable outlook

.LC senior unsecured MTN, upgraded to (P)Caa2 from (P)Caa3

.Short-term LC and FC Deposit Ratings, affirmed at Not-Prime

.... Other Short-term LC, Affirmed (P)Not-Prime

.... Counterparty Risk Assessment, affirmed at Caa2(cr)/Not-Prime(cr)

.NSR Long-term LC deposits and NSR LC senior unsecured MTN, upgraded to B2.ua from Caa3.ua

.... Outlook, changed to Stable from Negative

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit 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 credit 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 ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 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 certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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 of rated entities Privatbank and Prominvestbank were not initiated or not maintained at the request of these rated entities.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis, Privatbank and Prominvestbank or their agents are considered to be non-participating entities. These rated entities or their agents generally do not provide Moody's with information for the purposes of their ratings process.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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

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.

Maria Malyukova
Asst Vice President - Analyst
Financial Institutions Group
Moody's Interfax Rating Agency
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Yves Lemay
MD-Banking & Sovereign
Financial Institutions Group
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Moody's takes rating actions on 7 Ukrainian banks and one leasing company
No Related Data.
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