CIS Credit Monitor: Ukrainian banks, EVRAZ

In this issue:
 Moody’s downgrades three large Ukrainian banks
 EVRAZ: Q1 2009 trading update
Moody’s downgrades three large Ukrainian banks
Yesterday, Moody’s downgraded ratings on three Ukrainian banks following the eroded ability of the Ukrainian government to provide support to the systemic financial institutions in case of need. The negative rating action was rather a result of the pessimistic view on the Ukrainian economy than a deterioration of the credit quality of the institutions affected. After our recommendation in April (see our special report Ukraine banking sector under reconstruction) the Eurobonds of Ukreximbank and Privatbank brought investors good return. Now we do not rule out some negative impact on the banks’ Eurobonds outstanding.
Three large banks were affected by a two-notch downgrade. The rating agency downgraded Privatbank and Ukreximbank to Ba3 while the new rating for Savings Bank of Ukraine stood at B2. The debt on the three banks remains on a negative outlook signalling that further downgrades could materialise should the macro environment situation in the country deteriorate further. As a result, the agency expects a significant erosion of the capital base following a rapid increase in non-performing loans which, according to the agency, could reach above 20% of the total loan portfolio by the end of 2009.
Yesterday’s action reflects the pessimistic view of the rating agency on the Ukrainian economy and the banking sector as a whole rather than a significant deterioration of the credit quality of the banks. Secondary market priced trading Eurobonds from state-owned financial institutions at a significant premium compared to those from private-owned banks on the back of expected government support to be provided in case of need. That said, should concerns regarding the ability and willingness of the government to support those institutions continue, prices of government supported institutions are likely to suffer.