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Rating Action:

Moody's upgrades deposit ratings of four Belarus banks, outlook stable

21 Mar 2018

London, 21 March 2018 -- Moody's Investors Service has today upgraded the ratings of four Belarusian banks, following the upgrade of Government of Belarus' rating to B3 from Caa1 on 16 March 2018. For additional information, please refer to the related announcement: https://www.moodys.com/research/--PR_380322

Moody's has upgraded the long-term local-currency (LC) deposit ratings to B3 from Caa1 of the following three banks: Belarusbank, Belagroprombank JSC and Belinvestbank, and to B2 from B3 for BPS-Sberbank. At the same time, Moody's upgraded the Baseline Credit Assessments (BCAs) of two banks: Belarusbank and BPS-Sberbank to b3 from caa1, while affirming the BCAs for the other two banks at caa1.

The rating agency has upgraded the long-term foreign-currency (FC) deposit ratings of all four banks to Caa1 from Caa2 following the change in the country's FC deposit ceiling. The FC deposit ratings of the banks continue to be constrained by the country's FC bank deposit ceiling. Concurrently, all the long-term bank deposit ratings carry a stable outlook.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

OPERATING ENVIRONMENT

The rating actions on the Belarus banks were driven by improved operating environment, reflected in the sovereign ratings and ceilings upgrade, as well as by the agency's revision of Belarus banking system's Macro Profile to "Very Weak+" from "Very Weak".

The positive change in Belarus' Macro Profile was driven by improvements in Belarus' economic strength due to the initiation of fiscal and structural reforms, which have led to lower inflation, economic recovery, gradual phasing out of directed lending and better external liquidity position. After two years of recession, Belarus' economy expanded by 2.4% in 2017, according to the preliminary estimates from Belstat, the national statistics agency. Economic growth has resumed thanks to the resumption of oil imports from Russia and the associated increase in Belarus' refined oil production and exports. The upturn in the Russian economy -- Belarus' main trading partner - positively impacts the Belarusian economy. Moody's expects average economy growth rates of around 2% over the next several years and also anticipates real wages growth. Combination of better economic conditions and falling interest rates will help to stimulate credit demand and improve the repayment capacity of the borrowers.

--- BANK-SPECIFIC FACTORS

BELARUSBANK

The upgrade of state-owned Belarusbank's long-term LC deposit rating to B3 from Caa1 and FC deposit rating to Caa1 from Caa2 are driven by the upgrade of its standalone BCA to b3 from caa1 and the upgrade of the Belarus sovereign ratings.

The rating action reflects Belarusbank's (1) benefits from being the largest state-owned bank in the country with a dominant market share of 42% in assets as of end-2017, (2) better asset quality indicators than rated peers, (3) adequate capitalization with a regulatory total capital adequacy ratio (CAR) of 16.8% as of 1 Feb 2018, (4) good cost efficiency, and (5) granular funding structure with access to state deposits and the wholesale market. At the same time, the bank's ratings remain constrained by (1) the strong interlink between the bank's credit profile and the sovereign's creditworthiness, given direct sovereign exposure and lending to systemically important state-owned enterprises; (2) high credit risk concentrations in the bank's corporate loan book, and (3) the bank's very high reliance on foreign-currency deposits.

Belarusbank's deposit ratings incorporates our assessment of very high probability of government support, given the bank's majority state ownership and dominant domestic market position. However, given that the B3 sovereign rating is equal to the bank's b3 BCA, the deposit ratings do not benefit from any government support uplift.

BELAGROPROMBANK JSC

The upgrade of state-owned Belagroprombank's long-term LC deposit rating to B3 from Caa1 and FC deposit rating to Caa1 from Caa2 are driven by the upgrade of the Belarus sovereign ratings. At the same time, Moody's affirmed bank's current BCA at caa1.

The bank's caa1 BCA is constrained by its (1) weak asset quality with very high level of problem loans owing to the government-directed lending, predominantly in the agricultural sector (2) weak loss absorption capacity given low reserves coverage of problem loans, (3) high funding dollarisation and limited foreign-exchange cash buffers, which constrain its liquidity profile. These challenges are partially mitigated by (1) the regular government support in the form of direct capital injections with the most recent one conducted in May 2017, which underpinned the bank's regulatory total CAR at 21.5% as of 1 February 2018, (2) ongoing transfer of problem loans to the Distressed Asset Fund created by the state to ease pressure on banks, and (3) other state aid from the government to the bank and its problematic borrowers, along with the regulatory forbearance to help maintain its capitalization at the required level.

Belagroprombank's LC deposit ratings benefit from one notch of uplift above its caa1 BCA given Moody's assessment of a very high probability of government support. This is based on (1) the bank's ownership by the Belarusian government; (2) its policy mandate in lending to the strategically important agricultural sector; (3) the bank's strong position in the market, with a 16% market share, and (4) track record of government support.

BPS-SBERBANK

The upgrade of BPS-Sberbank long-term LC deposit rating to B2 from B3 and FC deposit rating to Caa1 from Caa2 are driven by the upgrade of its standalone BCA to b3 from caa1 and adjusted BCA to b2 from b3, and the upgrade of the Belarus sovereign ratings and deposit ceilings.

The BCA upgrade is supported by the bank's (1) gradually decreasing problem loans and good reserves coverage, (2) reasonable capital buffer, which benefits from the recent deleveraging and financial aid from the Russian parent, (3) sound profitability with annualized return on assets of 2.2% as of Q32017 underpinned by healthy net interest margin of 7%, and (4) good access to stable funding sources and the parent's liquidity in case of need. At the same time, bank's ratings remain constrained by direct exposure to Belarus sovereign debt and lending to state-owned companies.

BPS-Sberbank's b2 adjusted BCA and B2 LC deposit ratings incorporate Moody's assessment of a very high probability of affiliate support from Russia's Sberbank, driven by the parent's strategic commitment and majority stake in the banks, and the bank's strong strategic fit with the parent.

BELINVESTBANK

The upgrade of state-owned Belinvestbank's long-term LC deposit rating to B3 from Caa1 and FC deposit rating to Caa1 from Caa2 are driven by the upgrade of the Belarus sovereign ratings. At the same time, Moody's affirmed the bank's current BCA at caa1.

Belinvestbank's caa1 BCA reflects its weak solvency metrics, characterized by weak asset quality with high share of problem loans and thin reserves coverage, break-even profitability constrained by high credit costs and modest capital buffer. The BCA is supported by the bank's ample liquidity buffers and the ongoing financial aid from the government that is helping it address solvency issues.

Moody's revised government support assumptions for Belinvestbank to high from current very high probability of support given plans for its privatization and lower market share of 6% compared to other two largest state-owned banks. The bank's LC deposit ratings benefit from one notch support uplift above its caa1 BCA.

STABLE OUTLOOK

The stable outlook on the banks' long-term deposit ratings reflects the stabilization of the operating environment for Belarusian banks, as well as the stable outlook on the sovereign rating.

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.

In turn, the banks could be downgraded following a deterioration in the creditworthiness of Belarus. Downgrades could also be triggered by a deterioration of the banks' solvency metrics, e.g. weaker asset quality, lower capital adequacy and/or loss-making performance.

LIST OF AFFECTED RATINGS

Issuer: BPS-Sberbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to B2 from B3, Outlook remains Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa1 from Caa2, Outlook remains Stable

....Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

....Baseline Credit Assessment, Upgraded to b3 from caa1

Affirmations:

....ST Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Remains Stable

Issuer: Belagroprombank JSC

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to B3 from Caa1, Outlook remains Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa1 from Caa2, Outlook remains Stable

Affirmations:

....ST Bank Deposits, Affirmed NP

....Adjusted Baseline Credit Assessment, Affirmed caa1

....Baseline Credit Assessment, Affirmed caa1

....LT Counterparty Risk Assessment, Affirmed B3(cr)

....ST Counterparty Risk Assessment, Affirmed NP(cr)

Outlook Actions:

....Outlook, Remains Stable

Issuer: Belarusbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to B3 from Caa1, Outlook remains Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa1 from Caa2, Outlook remains Stable

....Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1

....Baseline Credit Assessment, Upgraded to b3 from caa1

Affirmations:

....ST Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Remains Stable

Issuer: Belinvestbank

Upgrades:

....LT Bank Deposits (Local Currency), Upgraded to B3 from Caa1, Outlook remains Stable

....LT Bank Deposits (Foreign Currency), Upgraded to Caa1 from Caa2, Outlook remains Stable

Affirmations:

....ST Bank Deposits, Affirmed NP

....Adjusted Baseline Credit Assessment, Affirmed caa1

....Baseline Credit Assessment, Affirmed caa1

....LT Counterparty Risk Assessment, Affirmed B3(cr)

....ST Counterparty Risk Assessment, Affirmed NP(cr)

Outlook Actions:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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

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.

Maria Malyukova
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

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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