Moody's downgrades Swedbank OJSC and Swedbank Invest (Ukraine) to B1/E, negative outlook
May 28, 2009 "Moody’s"
Moscow, May 28, 2009 -- Moody's Investors Service has today downgraded the
long-term local currency deposit ratings of Swedbank OJSC and Swedbank
Invest (Swedbank OJSC's fully consolidated subsidiary) and the local
currency debt rating of Swedbank Invest to B1 from Ba2. The bank
financial strength ratings (BFSRs) of Swedbank OJSC and Swedbank Invest
were downgraded to E from E+ which maps to a Caa1 Baseline Credit
Assessment (BCA). The banks' B3 long-term foreign currency deposit
ratings (negative outlook), which are constrained by the sovereign
ceiling, and the Non-Prime short-term ratings were affirmed. The outlook
on the E BFSRs is stable following the downgrade. The outlook on Swedbank
OJSC's local currency deposit rating was changed to negative from stable.
With exception of the BFSR, all ratings of Swedbank Invest continue to
carry a negative outlook. The National Scale Ratings were downgraded to
Aa3.ua from Aa1.ua.
The downgrade of the BFSRs reflects Moody's expectation that the economic
volatility and uncertainty in Ukraine will adversely affect the banks'
intrinsic financial strength. In particular, Moody's believes that the
more challenging operating environment is likely to lead to deterioration
in asset quality, capital ratios, revenues and earnings of Swedbank OJSC
and Swedbank Invest. Given the recent Ukrainian hryvnia depreciation, the
rating agency is concerned about the high share of foreign-currency
denominated loans: Swedbank OJSC reports 80% of FX-denominated loans
while Swedbank Invest reported 71%. As a point of reference, Moody's
notes that approximately 53% of loans by all rated Ukrainian banks are
denominated in foreign currencies, mainly in US dollars.
Exposure to FX risk in the loan book is combined with sizeable
concentration in the banks' loan books and sector-specific exposures such
as to the business-cycle-sensitive construction sector. Given the nature
of this exposure, losses and write-down requirements are more
unpredictable. Moody's also remains concerned about the significant
amount of related-party loans in the banks' books. Moody's has
incorporated an analysis of embedded losses in the loan books and
believes that capital adequacy would be negatively affected as the
overall asset quality deteriorates.
Furthermore, Moody's will closely monitor the banks' liquidity positions.
As a consequence of the adverse pressure on Swedbank OJSC's and Swedbank
Invest's intrinsic financial strength, Moody's believes that a BFSR of E
-- mapping to a Caa1 BCA -- is a more appropriate rating level for the
credit risk profile of those institutions.
The negative outlook on the B1/E ratings of Swedbank OJSC and Swedbank
Invest reflects uncertainties regarding impairment prospects beyond
Moody's current expectations, given the difficult economic environment in
the banks' domestic market. The outlook also incorporates increasing
uncertainties with regards to the strategic fit and importance to the
Swedbank group of its Ukrainian subsidiaries, considering the current
economic and political uncertainty in Ukraine as well as the more
difficult economic conditions in the parent bank's main operating markets.
Moody's previous rating action on Swedbank OJSC and Swedbank Invest was
on 12 May 2009 when the rating agency downgraded the global foreign
currency deposit ratings of 19 Ukrainian banks to B3 from B2 and assigned
a negative outlook to those ratings. The rating action was driven by a
change in the respective sovereign ceiling.
The principal methodologies used in rating these issuers are "Bank
Financial Strength Ratings: Global Methodology" and "Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology",
which can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the
rating process can also be found in the Credit Policy & Methodologies
Headquartered in Kiev, Ukraine, Swedbank OJSC reported total assets of
UAH 15.9 billion (US$2.1 billion) according to local accounting standards
at the end of 2008. Swedbank OJSC focuses mainly on providing
conventional corporate lending products, and granting express types of
cash loans and mortgages to individuals. Swedbank OJSC's fully
consolidated subsidiary, Swedbank Invest, reported total assets of UAH5.5
billion (US$724 million) according to local accounting standards at the
end of 2008. Swedbank Invest provides tailor-made leveraged financing
with a rapid turnaround on decision-making, as well as a limited-range of
private banking services adjusted to local conditions. In early 2007,
Swedbank OJSC and Swedbank Invest were fully acquired by Swedbank AB
(C-/Baa2/A1), one of Sweden's leading banks.
Company — Omega Bank
Full namePublic Joint Stock Commercial Bank "Omega Bank"