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Moody's affirms Bank Pivdennyi ratings at B2/E+/b2; stable outlook

July 17, 2012 | Moody's Investors Service

London, 17 July 2012 -- Moody's Investors Service has today affirmed the global scale ratings of Bank Pivdennyi. Concurrently the rating agency downgraded the bank's National Scale Rating (NSR) to A2.ua from A1.ua, reflecting a reassessment of the bank's positioning amongst Ukrainian peers owing to some weakening in asset quality and profitability metrics.

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

RATINGS RATIONALE

The affirmation of the global scale ratings reflects Bank Pivdennyi's (i) strong market position in its home region -- the city of Odessa in the south of Ukraine -- with a combined market share of up to 30% in corporate and retail segments, (ii) highly granular retail deposit base and limited dependence on wholesale funding, with average loans-to-deposit ratio of 95% in 2011; (iii) strong revenue generation capacity, with stable pre-provision income underpinned by healthy net interest margin of 4% in 2011 (2010: 3%), and (v) ample capitalisation, with Tier 1 capital adequacy reported at 14.3% as at year-end 2011
(2010: 14.7%).

At the same time, the downgrade of Bank Pivdennyi's NSR A2.ua from A1.ua reflects a the rating agency's reassessment of the bank's positioning amongst Ukrainian peers due to (i) some deterioration in the bank's asset quality and (ii) increased levels of single-name risk concentrations.

Bank Pivdennyi reported an increase in the volume of individually impaired loans (which Moody's consideres as problem portfolio) to 20.4% of total loans as at year-end 2011 from 18.2% as at year-end 2010, which led to additional allowance expenditure. These provisioning charges absorbed almost 80% of pre-provision income in 2011 compared to 40% in 2010.
Moody's does not expect material improvements in the bank's asset quality and profitability indicators in 2012-2013 due to challenging credit conditions currently present in Ukraine.

In addition, the rating agency notes an increase in Bank Pivdennyi's single-name credit risk concentrations: top-10 borrowers accounted for over 230% of the bank's Tier 1 capital as at year-end 2011 (year-end
2010: 185%), which is relatively high compared to its peers.

LIST OF AFFECTED RATINGS

- BFSR and standalone credit assessment affirmed at E+/b2, stable outlook

- Local-currency long-term deposit rating affirmed at B2, stable outlook

- Foreign-currency long-term deposit rating affirmed at B3, negative outlook

- NSR downgraded to A2.ua from A1.ua, carries no specific outlook

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Domiciled in Odessa, Ukraine, Bank Pivdennyi reported -- as at year-end
2011 -- total assets of USD1.6 billion and net income of USD6.6 million, according to audited IFRS financials.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in March 2011 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

The rating has been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following :
parties involved in the ratings, and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Company: Pivdenny Bank

Full company namePublic Company Bank "Pivdenny"
Country of riskUkraine
Country of registrationUkraine
IndustryBanks

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