Fitch Affirms VTB Bank (Belarus) at ‘B’; Outlook Negative
August 10, 2009
Fitch Ratings-London/Moscow-07 August 2009: Fitch Ratings has today affirmed Belarus-based VTB Bank’s (Belarus) CJSC (VTBB) Long-term Issuer Default Rating (IDR) at ‘B’ with a Negative Outlook. A full list of ratings is provided at the end of this comment.
VTBB’s IDRs and Support Rating are underpinned by the support the bank could receive, if needed, from its majority shareholder, Russia’s second largest state-owned bank VTB Bank (VTB, rated ‘BBB’/Outlook Negative). However, the extent to which such support could be utilised by VTBB may be limited by Belarusian transfer and convertibility risks.
The Negative Outlook reflects the growing risk that Belarus’s deteriorating macroeconomic environment and external finances could weaken the sovereign’s credit profile and lead to an increase in transfer and convertibility risks. (For further information, please see the 7 July 2009 comment entitled “Fitch Revises Four Belarusian State-Owned Banks' Outlooks to Negative” which is available at www.fitchratings.com.)
VTBB’s Individual Rating of ‘E’ reflects the risks stemming from rapid loan book growth before crisis (112% in 2008; 156% in 2007), which may give rise to significant loan impairment growth as the loan book seasons. However, the current level of reported NPLs, defined as loans overdue by 90 days, remains at a low 0.5% of the loan book at end-H109 and fully covered by reserves (equal to 2.4% of gross loans under Belarusian accounting standards at end-H109 and 3.5% of loans under IFRS at end-Q109). Fitch notes that the loan book is largely FX-denominated. This is somewhat less of a concern for corporate exposures, which are dominated by the oil/petrochemical and related industries, have easier access to FX revenues and mainly use short-term loans for working capital purposes. However, it is more of a concern in the retail loan book in the current environment. The retail portfolio has grown quickly and increased to 23% of the gross loan book at end-Q109 under IFRS from 10% at end-2006, mainly consisting of long-term mortgages and auto loans. Any significant further Belarusian Ruble (BYR) devaluation could lead to a substantial growth of NPLs and require additional capital to absorb them.
VTBB’s tier 1 and total capital ratios were 11.8% and 21.2%, respectively, at end-H109. Fitch estimates that the bank could have increased the reserves/loans ratio up to 14% at end-H109, before capital ratios would have reached minimum regulatory levels. However, loss absorption capacity may be notably reduced in the event of a marked BYR devaluation, which would inflate risk-weighted assets due to the high share of FX loans.
VTBB is a universal bank, predominantly focused on servicing corporate clients. At end-H109, VTBB had 2.2% of system assets, 2.1% of corporate loans and 1.3% of retail deposits. VTBB’s largest shareholder is VTB with a 69.7% stake.
The rating actions are as follows:
Long-term IDR: affirmed at 'B'; Outlook Negative
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '4'
Individual Rating: affirmed at 'E'
Company — VTB (Belarus)
Full nameCJSC VTB Bank (Belarus)