Fitch Rating Rationale on Downgrade of Rodovid Bank

Fitch Ratings- London/Moscow-28 January 2009: Fitch Ratings comments today on the recent downgrade of the Long-term Issuer Default rating (IDR) of Ukraine's Rodovid Bank (‘RB’) to ‘CC’ from ‘CCC‘. The agency also announced that the Outlook on the bank's Long-term IDR is Negative. The rating actions were 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 RB is provided at the end of this release. The downgrade reflects further tightening of RB’s liquidity and capitalisation in Q408 and concerns about likely asset quality deterioration given recent rapid growth, the very high risk nature of RB’s loan exposures and the deterioration in the operating environment. RB’s liquidity position has come under heightened pressure on the back of significant outflow of customer funds, which Fitch estimates at 25% net of foreign currency effects, since end-Q308. As a result, and notwithstanding a significant one-year collateralised refinancing facility received from the National Bank of Ukraine (NBU), liquid assets (defined as cash, net short-term interbank placements and placements with NBU net of regulatory reserves) covered only 21% of customer funding as of end-December 2008. Furthermore, RB has significant volumes of very short-term borrowings from financial institutions which are not matched by interbank placements. The most recent data available to Fitch show only moderate reported non-performing loans (NPLs, loans overdue by 90 days, were 1.6% of the portfolio at end-June 2008). However, the proportion of restructured loans has been significant (6.2% at end-June 2008), although some of these may have been due to planned loan maturity extensions rather than deterioration of borrowers’ financial positions In Fitch’s view, a further, marked deterioration of asset quality is likely, in particular given very rapid recent growth, the still largely unseasoned portfolio, a high proportion of foreign currency loans (30% at end-2008), the recent sharp devaluation of the UAH and the deteriorating macroeconomic environment. Additionally, RB has exceptionally high exposure to the real estate sector from a single development project. Loss absorption capacity is very weak, with reserve coverage of NPLs just 67% at end-June 2008, and the total regulatory capital ratio just 10.1% at end-2008 (barely above the minimum 10% level). Failure to strengthen the liquidity and capital positions of the bank could make it difficult for RB to fulfil its obligations, and therefore result in a further downgrade of the ratings. Recapitalisation of the bank could help to support both capital and liquidity and provide some capacity to absorb losses resulting from deterioration of asset quality. At end-9M08, RB was the 19th largest bank in Ukraine with an approximately 1% share of sector assets. RB is majority owned by five individuals. In December 2008, the majority owners reportedly entered into negotiations to sell a controlling stake in RB’s holding company (and hence an indirect 39% in the bank) to the ISTIL Group, which has interests in the construction and media sectors. Rating Actions: Long-term IDR: downgraded to 'CC' from ‘CCC’; Rating Watch Negative removed; Negative Outlook assigned Short-term IDR: affirmed at 'C'; Rating Watch Negative removed Individual rating: affirmed at 'E' Support rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' National Long-term rating: downgraded to 'B'(ukr) from ‘BB-(ukr)’ (BB minus (ukr)); Rating Watch Negative removed; Negative Outlook assigned

• Full name
  Public Joint Stock Company "Rodovid Bank"
• Industry
  Banks