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Moody's changes outlook for VAB Bank's ratings to positive from stable (Ukraine)

October 13, 2010 | Moody's Investors Service

Moscow, October 12, 2010 -- Moody's Investors Service has today changed to positive from stable the outlook for VAB's (i) bank financial strength rating (BFSR) of E; (ii) long-term foreign and local-currency bank deposit ratings of Caa1 and foreign-currency senior unsecured debt rating of Caa1.

At the same time the National Scale Rating (NSR) was upgraded to Ba1.ua
from Ba2.ua. The NSR carries no specific outlook.

RATINGS RATIONALE

The rating action reflects (i) VAB's capitalisation, currently well in excess of minimum regulatory levels (with a total CAR of 14.4% as of Q2 2010) -- although it is currently under pressure from low recurring profitability; (ii) the shareholders' commitment to inject a further
UAH550 million of Tier 1 capital by year-end 2010; and (iii) an adequate level of loan-loss provisions (17.95% of total loans as of Q2 2010), which in our opinion provides a sufficient coverage for expected losses from the deteriorated loan book. Moody's believes that VAB's asset quality will not materially deteriorate as the existing problem loans have already materialised and we do not expect more loans to migrate into the problem category.

The rating agency also takes into account the history of shareholder
support to VAB, as evidenced by US$19 million capital increase in 2009 and the commitment to inject new Tier 1 equity by the end of 2010.

However, we note that VAB remains loss-making on both a pre-provision and
a post-provision basis given a significant squeeze in margins (its net interest margin dropped to low 1.3% level in H1 2010 from 5.1% in 2009) and a decline in fees income. VAB thus continues to require an additional buffer to protect its capital from depletion by recurring
losses.

Going forward the ratings could be upgraded if the planned capital
injection materialises. Whilst VAB's shareholders stated their intention to inject capital into the bank in 2010, this statement does not amount to an irrevocable commitment on their part. Another pre-requisite for a rating upgrade would be a sustained track-record of profitable performance by the bank, which would be evidence of VAB's ability to generate capital internally.

Moody's previous rating action on VAB Bank was implemented on 8 September 2009, when the rating agency downgraded VAB's ratings to Caa1/E/Ba2.ua from B2/E+/A3.ua.

The principal methodologies used in rating VAB Bank were Bank Financial Strength Ratings: Global Methodology published in February 2007 and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in Kyiv, VAB reported total assets of US$840 million as of
30 June 2010 (under IFRS) and a net loss of US$31 million for H1 2010.


Company: VAB Bank

Full company namePJSC VAB Bank
Country of riskUkraine
IndustryBanks

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