Fitch Places Forum Bank on Rating Watch Negative
August 7, 2012 Fitch Ratings
Fitch Ratings-Moscow/London-06 August 2012: Fitch Ratings has placed Ukraine's Forum Bank's ratings, including its 'B' foreign currency Long-term Issuer Default Rating (IDR), on Rating Watch Negative (RWN). A full list of rating actions is at the end of this commentary.
RATING ACTION RATIONALE AND DRIVERS
The rating action follows the recent announcement that Ukrainian-based Smart Holding will acquire a 96% stake in Forum from the bank's current shareholder, Commerzbank AG ('A+'/Stable). Fitch has been informed that the sale is likely to be completed in the next three to four months.
The affirmation of Forum's Viability Rating (VR) at 'cc' reflects high pressure on the bank's economic capital and weak asset quality (for more details see "Fitch Affirms 4 Foreign-Owned Ukrainian Banks; Revises Forum's Outlook to Negative" dated 13 July 2012 at www.fitchratings.com). In addition, there is a significant risk of continued deposit outflow from Forum as a result of the announced shareholder change, while liquid assets (net of short-term interbank liabilities) covered a moderate 17% of customer accounts at 1 August 2012.
Fitch expects to resolve the RWN and downgrade Forum's Long-term IDRs in the near-term, i.e. prior to completion of the bank's sale, to reflect the reduced probability of external support for the bank from the new shareholder.
The Long-term IDR could be downgraded to 'CC', the current level of the bank's VR, if Fitch believes that the acquisition is unlikely to benefit the bank's standalone profile.
However, the downgrade might be slightly less severe if Fitch understands that the transfer of ownership is likely to result in improved prospects for work-outs and recoveries of some of the bank's problem assets, or if the new owner supports Forum's funding and liquidity profile. Representatives of Smart Holding have informed Fitch that no capital injections into Forum are currently planned. Nevertheless, some uncertainty remains regarding the motivations of Smart Holding in acquiring the bank and its plans for Forum's future development.
If funding outflows accelerate in the near term and are not offset by liquidity support by either the new or the old shareholder, resulting in the bank not being able to service its current obligations, the Long-term IDR could be downgraded to 'RD'. At present it is uncertain whether Commerzbank would provide any further liquidity support to Forum prior to the completion of the bank's sale, or whether the new shareholder would be willing and able to make funding available.
Fitch will attempt to receive clarification from Smart Holding on its plans for Forum, and from both shareholders on potential interim liquidity support, prior to resolving the Rating Watch.
The rating actions are as follows:
Long-term foreign currency IDR: 'B'; placed on Rating Watch Negative
Long-term local currency IDR: 'B+'; placed on Rating Watch Negative
Short-term foreign currency IDR: 'B'; placed on Rating Watch Negative
Support Rating: '4'; placed on Rating Watch Negative
Viability Rating: affirmed at 'cc'
National Long-term Rating: 'AA+ (ukr)'; placed on Rating Watch Negative
Senior unsecured: 'AA+(ukr)'; placed on Rating Watch Negative
Company — Forum Bank
Full namePUBLIC JOINT STOCK COMPANY "BANK FORUM"