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Rating Action:

Moody's upgrades two Georgian banks; outlook remains stable

13 Sep 2017

Rating action follows upgrade of Georgia's sovereign rating to Ba2

Limassol, September 13, 2017 -- Moody's Investors Service (Moody's) has today upgraded JSC Bank of Georgia's (BoG) and JSC TBC Bank's local-currency deposit ratings to Ba2 from Ba3 and their foreign-currency deposit ratings to Ba3 from B1. BoG's senior unsecured foreign-currency debt rating was also upgraded to Ba2 from Ba3. The ratings continue to carry a stable outlook.

The banks' short-term deposit ratings were affirmed at Not Prime and their Counterparty Risk Assessments (CR Assessment) were affirmed at Ba2(cr)/Not Prime(cr). The banks' standalone Baseline Credit Assessments (BCA) and adjusted BCAs of ba3 are unaffected by this action.

Today's rating action on the Georgian banks is driven by Moody's upgrade of Georgia's government bond ratings to Ba2 stable from Ba3 stable on 11 September 2017 (please see https://www.moodys.com/research/--PR_371756) and reflects the rating agency's view that the government's improved creditworthiness enhances its capacity to provide support to the two banks, in case of need.

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

RATINGS RATIONALE

UPGRADE OF LOCAL-CURRENCY DEPOSIT RATINGS

The upgrade of BoG's and TBC Bank's local-currency deposit ratings is primarily driven by the improved capacity of the government to provide support to the banks in case of need, as indicated by the upgrade of Georgia's government bond rating to Ba2 with stable outlook, and Moody's assessment of a high probability of government support for the two banks. The Ba2 local-currency deposit ratings now benefit from one notch of government support uplift from the banks' ba3 standalone BCA.

Moody's high support assessment for the two banks derives from their systemic importance to the national economy and the functioning of the domestic financial system and despite constraints on the government's financial flexibility to provide support to failing institutions because of the high degree of dollarisation in the economy: BoG's and TBC Bank's share of client deposits in Georgia was 32% and 40% respectively as of end-June 2017; their market share of gross loans was 32% and 38% respectively at the same date.

UPGRADE OF BANK OF GEORGIA'S SENIOR UNSECURED RATING

The upgrade to Ba2 from Ba3 of the foreign-currency rating assigned to the lari-denominated senior unsecured notes issued by BoG reflects, similarly to the upgrade of the bank's local-currency deposit rating, one notch of rating uplift from Moody's high government support assumption and Georgia's Ba2 government bond rating.

Ratings assigned to BoG's domestic holding company, JSC BGEO Group, were unaffected by today's action. JSC BGEO Group's B1 debt and issuer ratings are positioned one notch below BoG's unchanged ba3 adjusted BCA to reflect the structural subordination of the holding company's creditors to those of its operating subsidiaries. JSC BGEO Group's ratings do not incorporate any government support uplift because Moody's considers that any support would flow directly to the bank rather than through the holding company.

UPGRADE OF FOREIGN-CURRENCY DEPOSIT RATINGS

Moody's upgrade of the banks' foreign-currency deposit ratings to Ba3 from B1 reflects the rise in Georgia's foreign-currency deposit ceiling to Ba3 from B1. The ceiling remains positioned one notch below the sovereign rating and therefore continues to constrain the banks' foreign-currency deposit ratings.

OPERATING ENVIRONMENT FOR BANKS

Moody's continues to assess Georgia's Macro Profile (operating environment for banks) as Weak+. Therefore, Georgian banks' standalone BCAs were unaffected by the upgrade of the sovereign rating.

The rating agency's assessment incorporates the funding challenges posed by the large quantity of foreign-currency deposits, that account for two-thirds of total deposits (mostly US dollars) and a material amount of non-resident deposits, which are more confidence sensitive. The system also faces credit risks related to a high level of foreign-currency lending to borrowers with no foreign-currency income and Moody's expectation of a rapid rate of credit growth, above nominal GDP, over the next 12-18 months. Higher risk-weighting for unhedged foreign-currency loans and an efficient foreclosure process partially mitigate these risks.

STABLE OUTLOOK

The stable outlook on the banks' long-term deposit ratings and BoG's senior unsecured rating is in line with the stable outlook on the sovereign rating. Furthermore, the stable outlook also reflects the ratings agency's view that the banks' strong profitability, adequate capitalisation and liquidity balance the risks arising from a developing operating environment and the extensive use of foreign currency.

AFFIRMATION OF THE CR ASSESSMENTS

Moody's has also affirmed BoG's and TBC Bank's long- and short-term CR Assessments of Ba2(cr)/Not Prime(cr). We expect authorities to honour the operating obligations a CR Assessment refers to in order to preserve the banks' critical functions and reduce potential for contagion. Therefore, the CR Assessments are positioned, prior to support, one notch above the banks' adjusted BCA of ba3. Consequently, the two banks' CR Assessments do not benefit from government support uplift because government's capacity to provide support is limited at its Ba2 rating.

WHAT COULD MOVE THE RATINGS UP/DOWN

There is limited upward rating pressure for the banks' local-currency deposit ratings and BoG's senior unsecured debt rating given that they are already in line with Georgia's sovereign rating. Upward rating pressure will require both an improvement in the banks' standalone assessment mainly through improved operating conditions, such as the evolution and diversification of the Georgian economy and a substantial reduction in loan and deposit dollarisation, and an upgrade in the rating of the Georgian government.

The banks' foreign-currency deposit ratings are constrained by Georgia's ceiling for foreign-currency deposits and would be upgraded in the event that the ceiling for such deposits is raised.

Downward pressure on the banks' ratings would develop as a result of a rise in nonperforming loans, and hence credit costs, well beyond our current expectation of around 2%, which would hurt the bank's bottom-line profitability. The ratings could also be downgraded as a result of a resurgence of political risk that would lead to significant funding outflows. A material deterioration in the domestic operating conditions in Georgia, as described in our Macro Profile for the country, would also strain the banks' ratings.

There could also be negative pressure on the banks' local-currency deposit ratings and BoG's senior unsecured rating if Moody's believes that the government's willingness to provide support in case of need has diminished.

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.

LIST OF AFFECTED RATINGS

Issuer: JSC Bank of Georgia

Upgrades:

....Long term local-currency deposit rating, upgraded to Ba2 from Ba3, stable outlook

....Long term foreign-currency deposit rating, upgraded to Ba3 from B1, stable outlook

....Senior unsecured foreign-currency rating, upgraded to Ba2 from Ba3, stable outlook

Affirmation:

.Short term bank deposits (local & foreign currency), affirmed NP

....Long term Counterparty Risk Assessment, affirmed Ba2(cr)

....Short term Counterparty Risk Assessment, affirmed NP(cr)

Issuer: JSC TBC Bank

Upgrades:

....Long term local-currency deposit rating, upgraded to Ba2 from Ba3, stable outlook

....Long term foreign-currency deposit rating, upgraded to Ba3 from B1, stable outlook

Affirmation:

.Short term bank deposits (local & foreign currency), affirmed NP

....Long term Counterparty Risk Assessment, affirmed Ba2(cr)

....Short term Counterparty Risk Assessment, affirmed NP(cr)

Outlook Actions:

..Issuer: JSC Bank of Georgia

....Outlook, Remains Stable

..Issuer: JSC TBC Bank

....Outlook, Remains Stable

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.

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.

Alexios Philippides
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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