BELARUS NEWS AND ANALYSIS
DATE:
07/08/2009
Fitch Rates Belarusian Belvnesheconombank B
Fitch Ratings-London/Moscow-07 August 2009: Fitch Ratings has today assigned Belarusian Belvnesheconombank (BVEB) a Long-term Issuer Default Rating (IDR) of 'B', Short-term IDR 'B', an Individual rating of 'D/E', a Support rating of '4', and Support Rating Floor of 'No Floor'. The Outlook for the Long-term IDR is Negative
BVEB's IDRs and Support Rating are underpinned by potential support, in case of need, from its majority shareholder, Russia's Vnesheconombank (VEB, 'BBB'/ Negative Outlook). Fitch believes that should BVEB require support, VEB would be likely to have both the propensity and ability to provide it. However, Belarusian transfer and convertibility risks may constrain the extent to which BVEB would be able to utilise this support.
The Individual rating reflects BVEB's relatively small size, significant borrower and depositor concentrations, a high share of foreign currency loans, its deteriorating asset quality and the risks associated with aggressive growth plans in a challenging operating environment. The Individual rating also takes into account the bank's special role in financing Belarus's international trade, comfortable liquidity profile and reasonable capital ratios. Its capitalisation is supported by improving profitability and should benefit from further recapitalisation plans that are likely to significantly strengthen the bank's loss absorption capacity.
The Negative Outlook reflects the growing risk that Belarus's deteriorating economic environment and external finances could weaken the sovereign's credit profile and lead to an increase in transfer and convertibility risks. The Individual rating could come under downward pressure should asset quality deteriorate faster than expected, particularly if recapitalisation plans are not implemented. Any significant threat to Belarus's economic stability could also put pressure on BVEB's Individual rating by impacting its asset quality, the stability of its funding base and its liquidity profile.
The loan portfolio grew 43% in 2008 and 17% in H109, although H109 growth was almost fully attributable to the depreciation of the Belarusian rouble (BYR). Despite the deteriorating environment, the bank budgets a 53% loan growth for 2009 (even though it missed the 31% growth target for H109). Reported asset quality is good but is rapidly deteriorating - loans overdue for over 90 days amounted to 1.1% of gross loans at end-H109 (end-2008: 0.6%) and a further 2.1% of the loan book was rolled over on the same date (end-2008: 0.3%). The aggressive growth targets, high share of foreign currency lending (65% of the loan book at end-H109) and significant borrower concentration (the 20 largest borrowers accounted for 49% of corporate loans at end-H109) expose the bank to additional credit risks.
The 20 largest depositors accounted for a significant 33% of total deposits at end-H109 although concentration risk is somewhat mitigated by BVEB's comfortable liquidity position with liquid assets (defined as cash and equivalents, interbank placements and securities) amounting to 51% of customer funding at end-H109.
BVEB's regulatory tier 1 and total capital ratios stood at a reasonable 19.3% and 30.1%, respectively at end-H109 while significant improvement in profitability (H109 statutory net profit was 155% of 2008 profit) supports internal capital generation. Fitch estimates that at end-H109 BVEB could have raised its loan impairment reserves to approximately 26% of its gross loans from the current level of 2% before its capital adequacy would have fallen to the regulatory minimum level. A further increase of share capital by up to an equivalent of USD150m (about 92% of end-H109 equity) is planned for H209. VEB will also provide BVEB with long-term RUB-denominated subordinated debt equivalent to USD50m. After factoring in the budgeted loan portfolio growth of 53% for 2009 and these recapitalization plans, BVEB's maximum loss absorption capacity could increase up to about 46% of gross loans at end-2009, absent any significant BYR depreciation.
BVEB is 97.24%-owned by VEB and is a universal bank with a strong regional presence in Belarus and 2.5% share of the system's assets at end-H109. BVEB plays a special policy role in financing Russian imports and acts as an agent of the Belarusian government in attracting foreign investment into strategic infrastructure projects.
Contact: Svetlana Petrischeva, London, Tel: +44 (0) 20 741 77131, James Watson, Moscow, +7 (495) 956 6657.
Media Relations: Marina Moshkina, Moscow, Tel: +7 495 956 9901, Email: marina.moshkina@fitchratings.com; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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