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Rating Action:

Moody's takes rating actions on six Ukrainian banks

Global Credit Research - 30 Aug 2017

London, 30 August 2017 -- Moody's Investors Service has today taken rating actions on six Ukrainian banks. 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 Caa2, with a positive outlook, from Caa3 (stable outlook) on 25 August 2017. (Please see "Moody's upgrades Ukraine's rating to Caa2 from Caa3, outlook changed to positive from stable" https://www.moodys.com/research/--PR_370205). The rating actions on the banks were driven by an improved operating environment, reflected in the rating agency's revision of its Macro Profile for Ukraine to "Very Weak " from "Very Weak-", as well as by better financial fundamentals. Moody's has changed the outlooks to positive from stable on five of the affected banks' ratings, with the outlook on one bank's local currency deposit rating remaining stable.

Specifically, Moody's has:

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

(2) Upgraded the long-term Local Currency (LC) deposit ratings of five banks and affirmed the LC deposit rating of one bank;

(3) Upgraded the Foreign Currency (FC) deposit ratings of six banks;

(4) Upgraded the long-term LC senior unsecured debt rating of one bank;

(5) Upgraded the long-term FC senior unsecured debt ratings of two banks;

(6) Upgraded the FC subordinated debt ratings of one bank;

(7) Upgraded the National Scale Ratings (NSRs) of four banks;

(8) Upgraded the long-term Counterparty Risk Assessments (CR Assessments) of six banks.

RATINGS RATIONALE

OPERATING ENVIRONMENT

Moody's has revised Ukraine's Macro Profile to 'Very Weak' from 'Very Weak -'. While conditions in Ukraine remain highly challenging, banks' funding conditions have improved given steady growth in deposits since 2016 and gradually reducing reliance on wholesale funding. In addition, lower geopolitical risk and a stabilized local currency have enhanced the appeal of bank deposits and will also support a more stable operating environment. A gradual recovery in Ukraine's economy that began in 2016 after a sharp contraction in 2014/15 will continue into 2017-2018. Moody's expects modest annual GDP growth averaging 2.5% in 2017-2018 and believes that a combination of better economic conditions and falling interest rates will help to stimulate credit demand and improve the repayment capacity of existing borrowers.

--- BANK-SPECIFIC FACTORS

-- PRIVATBANK

The upgrade of state-owned Privatbank's LC deposit rating to Caa2 with a positive outlook from Caa3 (stable outlook), FC deposit rating to Caa3 with a positive outlook from Ca (stable outlook) are driven by the upgrade of its standalone BCA to caa3 from ca and the upgrade of the Ukrainian sovereign ratings.

The upgrade of the bank's BCA is in turn driven by the recovery of its solvency profile as a result of a recent government capital injection of UAH 22.5 billion, which has restored the bank's capital base and will allow Privatbank to comply with the minimum total capital adequacy ratio of 10%. The bank's caa3 standalone BCA remains constrained by high asset risk related to its loan portfolio and after-tax losses.

The bank's long-term LC deposit rating of Caa2 benefits from one notch of uplift from its BCA due to Moody's assessment of a Very High probability of government support given the bank's systemic importance, its recent nationalization and track record of significant capital and liquidity support since the end of 2016.

- SAVINGS BANK OF UKRAINE

The upgrade of state-owned Savings Bank of Ukraine's long-term LC deposit and long-term LC and FC senior unsecured debt ratings to Caa2 with a positive outlook from Caa3 (stable outlook), the bank's FC deposit rating to Caa3 with a positive outlook from Ca (stable outlook) and the upgrade of the bank's BCA to caa2 from caa3 are driven by the upgrade of the sovereign rating. The changes reflect in turn: (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, bonds guaranteed by the state, and state-owned companies including Naftogaz (in total, over 400% of the bank's equity at the end 2016; (2) the bank's strengthened profitability and capital position with a Tier 1 ratio of 17.9% reported for Q2 2017 (9.6% at the end of 2016); and (3) the bank's adequate liquidity position.

-- UKREXIMBANK

The upgrades of state-owned Ukreximbank long-term LC deposit and FC senior unsecured debt ratings to Caa2 with a positive outlook from Caa3 (stable outlook), the bank's FC deposit rating to Caa3 with a positive outlook from Ca (stable outlook), FC subordinated debt rating to Caa3 from Ca and the bank's BCA to caa2 from caa3 are driven by the upgrade of the sovereign rating. They reflect in turn: (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 500% of the bank's equity capital as at Q2 2017); (2) the bank's strengthened profitability and capital position with a Tier 1 ratio of 18% reported for Q2 2017 (5.8% at the end of 2016); and (3) the bank's adequate liquidity position.

-- RAIFFEISEN BANK AVAL

The upgrade of Raiffeisen Bank Aval's long-term LC deposit rating to Caa1 with a positive outlook from Caa2 (stable outlook), FC deposit rating to Caa3 with a positive outlook from Ca (stable outlook) and BCA to caa2 from caa3 are driven by the sovereign rating action, which lift the previous rating constraints on the bank's ratings, as well as stand-alone improvements to the bank's financial fundamentals. These improvements reflect the bank's: (1) sound capital buffer with Tier1 and total CAR under Basel I amounting to high 19.8% and 22.2% respectively as of end-2016 given solid earnings generation and recent capital injections, (2) good coverage of problem loans by reserves of more than 90%, which is the highest level among rated banks in Ukraine, and (3) improved bottom-line profitability on the back of reduced credit costs and widening Net Interest Margin.

Moody's continues to incorporate a moderate probability of affiliate support for Riaffeisen Bank Aval from the bank's parent, Raiffeisen Bank International AG (LT bank deposits Baa1 / senior unsecured Baa1 Stable, BCA ba2), resulting in a one-notch uplift to the bank's long-term deposit ratings.

-- PIVDENNYI BANK, JSCB

The upgrade to Pivdennyi Bank, JSCB (Pivdennyi) long-term FC deposit rating to Caa3 from Ca, and revision of the outlook to positive from stable on all long-term deposit ratings follows the sovereign rating action on Ukraine.

The bank's ratings benefit from (1) significant cross-border operations through a subsidiary bank in Latvia, which accounts for around 40% of the group's assets; (2) gradually decreasing problem loans and improving recurring profitability; as well as (3) limited wholesale debt repayments and an ample liquidity cushion (at 37% of assets at H1 2017), mainly kept through the Latvian subsidiary bank at other non-resident correspondent banks. Pivdenniy is currently compliant with the regulatory minimum CAR requirements and plans additional UAH130 million Tier1 capital injection by the end of 2017, which will support its capital buffer.

RATIONALE FOR THE POSITIVE OUTLOOK

The positive outlooks on the long-term ratings of these five Ukrainian bank ratings reflect the positive outlook on the sovereign rating and these bank's ratings are likely to move in tandem with the sovereign given the close relationship between the their operating environment, balance sheet strength and the government's own credit fundamentals.

-- PROMINVESTBANK

The upgrade of Prominvestbank's long-term LC deposit rating to Caa2 with a stable outlook from Caa3 (stable outlook) and the bank's FC deposit rating to Caa3 with a positive outlook from Ca (stable outlook) is driven by the upgrade of the bank's BCA to caa3 from ca and reflects the bank's strengthened capital position with a Tier 1 ratio of 23.37% reported for Q2 2017 (5.9% at the end of 2016), supported by large capital injections provided by its parent Vnesheconombank (Ba1 stable) in 2016-H1 2017. At the same time, the bank's BCA remains constrained by: (1) weak asset quality; (2) loss making performance and (3) currently limited business activity.

The bank's long-term LC deposit rating of Caa2 benefits from one notch of uplift from its BCA due to Moody's assessment of a moderate probability of affiliate support from the bank's parent Vnesheconombank.

FOREIGN CURRENCY DEPOSIT RATINGS

Moody's has upgraded FC deposit ratings with a positive outlook of six banks to Caa3 following the change in the country's FC deposit ceiling to Caa3 from Ca. The FC deposit ratings of the banks continue to be constrained by the country's FC bank deposit ceiling.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's considers that banks' ratings could be upgraded following further 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:

Issuer: Privatbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to Caa2 from Caa3, Outlook Changed To Positive From Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....Adjusted Baseline Credit Assessment, Upgraded to caa3 from ca

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

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa3(cr)

Outlook Actions:

....Outlook, Changed To Positive From Stable

Issuer: Savings Bank of Ukraine

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to Caa2 from Caa3, Outlook Changed To Positive From Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook Changed To Positive From Stable

....NSR LT Bank Deposits, Upgraded to B1.ua from Caa2.ua

....NSR Senior Unsecured Regular Bond/Debenture, Upgraded to B1.ua from Caa2.ua

....Adjusted Baseline Credit Assessment, Upgraded to caa2 from caa3

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

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa2(cr)

Outlook Actions:

....Outlook, Changed To Positive From Stable

Issuer: Ukreximbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to Caa2 from Caa3, Outlook Changed To Positive From Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook Changed To Positive From Stable

....Subordinate, Upgraded to Caa3 from Ca

....Adjusted Baseline Credit Assessment, Upgraded to caa2 from caa3

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

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa2(cr)

Outlook Actions:

....Outlook, Changed To Positive From Stable

Issuer: Prominvestbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to Caa2 from Caa3, Outlook Remains Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....NSR LT Bank Deposits, Upgraded to B2.ua from Caa2.ua

....Adjusted Baseline Credit Assessment, Upgraded to caa2 from caa3

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

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa2(cr)

Outlook Actions:

....Outlook, Changed To Stable(m) From Stable

Issuer: Raiffeisen Bank Aval

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to Caa1 from Caa2, Outlook Changed To Positive From Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....NSR LT Bank Deposits, Upgraded to Baa3.ua from B2.ua

....Adjusted Baseline Credit Assessment, Upgraded to caa1 from caa2

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

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa2(cr)

Outlook Actions:

....Outlook, Changed To Positive From Stable

Issuer: Pivdennyi Bank, JSCB

Upgrades:

....LT Bank Deposits (Foreign Currency), Upgraded to Caa3 from Ca, Outlook Changed To Positive From Stable

....NSR LT Bank Deposits, Upgraded to B1.ua from B2.ua

....LT Counterparty Risk Assessment, Upgraded to Caa1(cr) from Caa2(cr)

Affirmations:

....LT Bank Deposits (Local Currency), Affirmed Caa2, Outlook Changed To Positive From Stable

....Adjusted Baseline Credit Assessment, Affirmed caa2

....Baseline Credit Assessment, Affirmed caa2

Outlook Actions:

....Outlook, Changed To Positive From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies 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 May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

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 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.

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

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 rating 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
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
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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