Fitch Rating Rationale on Downgrade of Swedbank (Ukraine)’s Individual Rating
January 28, 2009 "Fitch Ratings"
Fitch Ratings- London/Moscow-27 January 2009: Fitch Ratings comments today on the downgrade yesterday of Ukraine-based OJSC Swedbank’s Individual rating to ‘E’ from ‘D/E’. The rating action was taken as part of a more general review of Ukrainian bank ratings, and took into account the heightened liquidity and asset quality risks and greater pressure on capital which Ukrainian banks have faced following the sharp depreciation of the UAH in Q408, as well as the weaker outlook for the Ukrainian economy. A full list of rating actions on OJSC Swedbank is provided at the end of this release.
“The downgrade of the Individual rating reflects the heightened credit risk profile of the bank in light of continued extremely rapid loan growth in 2008, the high proportion of loans denominated in foreign currency, the recent sharp devaluation of the UAH and the deterioration in the operating environment,” says Zarema Lyanova, Associate Director in Fitch’s Bank team. The downgrade also considers the bank’s dependence on parent Swedbank AB (‘A+’/Outlook Negative) for funding. At the same time, the liquidity and capital positions have been supported by the parent.
OJSC Swedbank’s loan book continued to grow at a rapid pace (170%) during 9M08, when credit expansion was slowing in the banking sector as a whole, meaning that the portfolio is currently highly unseasoned. Combined with the high share of foreign currency loans at end-2008 (80% - higher than most peers) this leaves the bank highly exposed to the deteriorating operating environment. In addition, the loan book has high single borrower concentrations and exposure to the real estate sector (the latter at 15% of loans at end-9M08). Loans overdue by 60 days or more were already at a significant 4.5% of total loans at OJSC Swedbank (unconsolidated) at end-Q308. In addition, Fitch understands there is a high proportion of restructured loans on the balance sheet of OJSC Swedbank’s subsidiary, Swedbank Invest.
Funding is dominated by facilities from the parent, which accounted for the majority of interbank funding (this in turn representing 60% of OJSC Swedbank’s unconsolidated liabilities) at end-November 2008. Customer funding accounted for just 24% of liabilities at the same date, making OJSC Swedbank less exposed than peers to risks relating to potential deposit outflow. Capital has been supported by the parent, and the regulatory total capital ratio was 15% at the beginning of January 2009, but this should be viewed in light of the heightened credit risk profile and the significant tier 2 component of capital.
At end-9M08, OJSC Swedbank was the 20th-largest bank by total assets in Ukraine with a market share of around 1.5% in loans and 1% in deposits. OJSC Swedbank is 99.99%-owned by Swedbank AB, Sweden’s fourth-largest banking group by total assets. OJSC Swedbank’s IDRs, Support and National ratings are driven by the potential for support from Swedbank AB.
Long-term foreign currency IDR: affirmed at 'B+'; Outlook Negative
Long-term local currency IDR: affirmed at 'BB-' (BB minus); Outlook Negative
Short-term foreign currency IDR: affirmed at 'B'
Individual rating: downgraded to 'E' from ‘D/E’
Support rating: affirmed at '4'
National Long-term rating: affirmed at 'AAA'(ukr)’; Outlook Stable
Company — Omega Bank
Full namePublic Joint Stock Commercial Bank "Omega Bank"