Fitch Rating Rationale on Affirmation of Bank Forum’s ratings
January 28, 2009 "Fitch Ratings"
Fitch Ratings- London/Moscow-27 January 2009: Fitch Ratings comments today on the affirmation yesterday of the ratings of Ukraine's Bank Forum. The rating affirmation was part of a more general review of Ukrainian bank ratings, which took into account the heightened liquidity and asset quality risks and greater pressure on capital which Ukrainian banks have faced as a result of the sharp depreciation of the UAH in Q408, as well as the weaker outlook for the Ukrainian economy. A full list of Bank Forum’s ratings is provided at the end of this release.
Forum’s Issuer Default (IDRs) and Support ratings reflect the potential support available from its majority owner, Germany’s Commerzbank group (Commerz; Commerzbank AG is rated ‘A’/Stable), in case of need. Ukraine's Country Ceiling of 'B+' limits the extent to which potential support can be factored into the ratings. In Q108, Commerz purchased a 60%+1 share of Forum and could acquire an additional 25% through an option which is valid up to March 2011. The Negative Outlook on Forum’s Long-term IDRs reflects the potential for Ukraine’s Country Ceiling to be downgraded together with the country’s sovereign ratings.
The Individual rating reflects risks stemming from the bank’s recent strong growth and the worsening operating environment, as well as the very high proportion of foreign currency lending, relatively high loan concentrations and recent deposit outflow. However, the rating also acknowledges Forum’s strengthened risk management following the acquisition by Commerz and the bank’s more favourable funding, liquidity and capitalisation positions compared to other Ukrainian banks whose Individual ratings were downgraded to ‘E’ yesterday.
In line with the general trend in the banking sector, the quality of Forum’s loan book worsened in H208, reflecting the seasoning of the portfolio and the deteriorating economic environment. Loans overdue by more than 90 days amounted to 4.3% of gross loans at end-2008 (end-H108: 2.8%). Foreign funding which matured in 2008 was largely replaced by funding from Commerz, and by end-2008, the share of Commerz funds increased significantly and made up 36% of total non-equity funding. Net of FX effects, customer funding fell approximately 23% in Q408; at end-2008 liquid assets (cash; net short-term interbank placements; placements with the National Bank of Ukraine net of obligatory reserves; and unpledged government securities) covered approximately 18% of customer funding. The Basel I Tier 1 and total capital ratios were 13.8% and 18%, respectively, at end-Q308. Pressure on capitalisation in Q408, resulting from the sharp UAH depreciation, was partially offset by a UAH640m equity injection, and at end-2008 the Basel I total capital ratio stood at 13%.
Forum is a medium-sized bank, ranked 14th by assets in Ukraine at end-Q308. The bank’s only other major shareholder apart from Commerz is a local businessman, Leonid Yurushev.
Yesterday’s rating actions on Bank Forum:
Long-term foreign currency IDR: affirmed at 'B+'; Outlook Negative
Senior unsecured debt: Long-term rating affirmed at 'B+', Recovery Rating affirmed at 'RR4'
Long-term local currency IDR: affirmed at 'BB-' (BB minus); Outlook Negative
Short-term foreign currency IDR: affirmed at 'B'
Individual rating: affirmed at 'D/E'
Support rating: affirmed at '4'
National Long-term rating affirmed at 'AAA(ukr)'; Outlook Stable
Company — Forum Bank
Full namePUBLIC JOINT STOCK COMPANY "BANK FORUM"