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Research Update: Ukraine-based JSC KREDOBANK Assigned B/C Ratings; Outlook Stable

June 23, 2006 | Cbonds


On June 23, 2006, year, Standard & Poor's Ratings Services assigned its B/C counterparty long and short-term credit ratings to Ukraine-based JSC KREDOBANK. At the same time it assigned its uaBBB Ukrainian National Scale rating. The outlook is stable.

The ratings on KREDOBANK reflect its low capitalization and profitability, modest domestic market position, and above average credit risk. In addition, the bank operates in the unstable political and macroeconomic environment in Ukraine (foreign currency, BB-/Stable/B; local currency, BB/Stable/B). Supporting rating factors are its good franchise in Western Ukraine, focused organic domestic retail growth strategy, which is being implemented by an experienced management team, support from its strategic shareholder PKO (BBBpi), and good corporate governance.

KREDOBANK is a medium-sized Ukrainian commercial bank with a market share around 1% by assets at March-end 2006. The concentration of the top banks in Ukraine is well below other CEE countries, with the largest Privatbank, holding only a 10.3% market share by assets. The bank’s low profitability is due to a lack of economies of scale and large provisioning costs. The absence of capital support in a period of strong asset growth in recent years has led to deterioration in KREDOBANK’S capitalization. The bank's above average credit risk stems from rapid loan growth in the environment with an untested credit culture, considerable loan leverage and high concentrations in the loan portfolio as a percentage of capital.

Although KREDOBANK lacks the size and operational flexibility to compete with larger banks on the national scale, it has established a good franchise in Western Ukraine, where its market share reached 7% in loans and deposits. KREDOBANK benefits from operational and managerial support from its Polish shareholder PKO, holding a 69% stake. PKO has initiated an expansion strategy in Eastern Europe and Standard & Poor's considers KREDOBANK to be a strategically-important subsidiary in achieving its aims in the region. Aided by shareholder capital injections expected in June 2006 and PKO’s experience in retail banking, KREDOBANK is implementing a new strategy of dynamic organic retail domestic growth. Standard & Poor's believes that the bank's experienced management team would be able to reach its realistic growth targets in the under-intermediated and rapidly growing Ukrainian banking sector. The bank has an advantage of well-developed internal processes and procedures, better corporate governance, information disclosure and transparency and more developed risk management systems than many of its CIS peers.


The stable outlook reflects Standard & Poor's expectations that the bank will be able to successfully implement its domestic retail growth strategy supported by its shareholders experience and capital contributions, and maintain control over credit and market risks. Higher creditworthiness will depend on longer track record of support and increased integration with PKO, marked improvements in capitalization and profitability, and decrease in lending concentrations as a percentage of capital. Conversely, worsening asset quality indicators, capitalization ratios, profitability and/or liquidity, reduced shareholder support and an inability to control risks in KREDOBANK’S rapidly expanding banking franchise will be viewed negatively.

Rating List

Long-term Counterparty credit rating B/Stable
Short-term Counterparty credit rating C

Ukrainian National Scale rating uaBBB

Company: Kredobank

Full company namePJSC "Kredobank"
Country of riskUkraine
Country of registrationUkraine


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