Fitch Downgrades Bank Forum to 'CC'; Off Rating Watch Negative

Fitch Ratings-Moscow/London-19 September 2012: Fitch Ratings has downgraded Ukraine-based PJSC Bank Forum's Long-term foreign-currency Issuer Default Rating (IDR) to 'CC' from 'B' and downgraded its Long-term local-currency IDR to 'CC' from 'B+'. Both ratings have been removed from Rating Watch Negative (RWN). A full list of rating actions is at the end of this commentary. RATING ACTION RATIONALE AND DRIVERS: IDR, SUPPORT RATING, NATIONAL RATING AND DEBT RATING The equalisation of Forum's Long-term IDRs with its Viability Rating (VR) reflects Fitch's view that external support for the bank cannot be relied upon following the agreement reached by the current major shareholder, Commerzbank AG ('A+'/Stable) to sell a 96% stake in Forum to the Ukrainian-based Smart Holding. Fitch understands that Commerzbank has no contractual commitment or intention to provide assistance to Forum following the deal completion, although the provision of limited liquidity support is possible prior to the sale being completed. Fitch views the support from Smart Holding as possible, but does not factor this into Forum's ratings due to the limited visibility of the group's overall financial position, and the absence of any capital support for the bank to date. However, the agency welcomes the fact that Smart has placed some funding with the bank. Fitch is informed that the sale is likely to be finalised by end-October 2012, subject to regulatory approvals. RATING ACTION RATIONALE AND DRIVERS: VIABILITY RATING Forum's 'cc' VR primarily reflects the bank's highly impaired loan book, its moderate impairment coverage and as a result its vulnerable capital position, and its negative pre-impairment performance. However, the rating also considers some recent stabilisation of the bank's deposit base and liquidity position after earlier outflows. Non-performing loans (NPLs) were a very high 65% at end-August 2012 and restructured loans comprised a further 15% of the portfolio. Impairment reserves in the statutory accounts provided only 42% coverage of combined NPLs and restructured loans, with the unreserved part equal to about 3x equity. The pre-impairment result for 8M12 was marginally negative, while published net income was close to zero due a negative tax charge, supporting the regulatory capital ratio at 20.7% at end-August 2012. The short open currency position, which stood at USD200m (equivalent of 1.1x statutory equity) at end-August 2012 also exposes the bank to significant risk of further capital erosion in the case of UAH devaluation. There are currently no plans to inject capital into the bank, as the new shareholder believes Forum is adequately capitalised. Conversion of an outstanding USD50m subordinated facility into equity may be contemplated in case of losses resulting from a UAH devaluation, but this is likely to provide only moderate capital relief, in Fitch's view. Forum's liquidity position has been manageable in recent weeks, with moderate retail deposit outflow largely compensated by corporate funds attracted from Forum's new shareholder. At end-August 2012, Fitch calculates that liquid assets, net of short-term interbank liabilities, were equal to 13% of customer funding. However, the agency believes that further outflows of retail, corporate and bank funding remain possible prior to and following the completion of the bank's sale, possibly necessitating further placements from the shareholder and/or liquidity support from the National Bank of Ukraine (NBU). According to publicly available information, Smart Holding combines various investments in metallurgy, oil and gas, agriculture and real estate, with the main asset being a 24% equity stake in METINVEST BV (IDR: 'B'/Stable). Fitch estimates that this investment alone could have generated USD220m of dividend income in 2011. However, the agency currently does not have audited information on the holding's current overall leverage and debt levels. RATING SENSITIVITIES A recapitalisation of the bank by the new shareholder, or tangible and material progress with successful work-outs of problem loans, could result in a rating upgrade. Rapid funding outflows, without offsetting placements by the shareholder or the NBU, could undermine the bank's liquidity and threaten its ability to service its obligations, resulting in a further downgrade. The rating actions are as follows: Long-term foreign currency IDR: downgraded to 'CC' from 'B' ; Removed from RWN Long-term local currency IDR: downgraded to 'CC' from 'B+'; Removed from RWN Short-term foreign currency IDR: downgraded to 'C' from 'B'; Removed from RWN Support Rating: downgraded to '5' from '4'; Removed from RWN Viability Rating: affirmed at 'cc' ; Removed from RWN National Long-term Rating: downgraded to 'B(ukr)' from 'AA+ (ukr)'; Removed from RWN Senior unsecured: downgraded to 'B(ukr)' from 'AA+(ukr)'; Removed from RWN.

• Full name
  PUBLIC JOINT STOCK COMPANY "BANK FORUM"
• Registration country
  Ukraine
• Industry
  Banks