Moody's Investors Service has today changed to stable from negative the outlook on the D- bank financial strength rating (BFSR) and the Ba3 local currency long-term deposit rating of Privatbank.
RATINGS RATIONALE
Moody's says the change of the outlook on Privatbank's ratings demonstrates the stabilisation of its credit profile, reflecting (i) the gradual recovery of the Ukrainian economy; (ii) the bank's entrenched position as the largest bank in Ukraine by total assets and individual deposits; (iii) stabilisation of the bank's asset quality indicators in 2010, which, combined with healthy revenue generation, adequate provisioning and regulatory capitalisation, should ensure that Privatbank remains well capitalised in the medium term.
According to Moody's, Privatbank's D- BFSR, which translates into a Baseline Credit Assessment (BCA) of Ba3, is underpinned its strong franchise and recognised name in Ukraine, where it is the largest bank by total assets, loans and deposits, with a nationwide branch network, and satisfactory financial fundamentals. However, the rating also takes into account some corporate governance issues, including the bank's close affiliation with companies controlled by its major shareholders. The rating also reflects the potentially understated aggregate exposure to related parties and still-sizeable risk concentrations in the corporate loan portfolio.
Privatbank's local currency deposit rating incorporates its Ba3 BCA and Moody's assessment of the probability of systemic support from the Ukrainian government. Although this support is assessed as high -- due to the bank's leading market shares as the largest bank in Ukraine -- it does not result in any uplift from the bank's BCA because the support-provider rating of Ukraine is B2, which is lower than the bank's BCA.
Privatbank's D- BFSR has limited upside potential in the near term. However, in the longer term, improvements in corporate governance procedures, recurring profitability, and substantial reduction in credit risk concentration could exert upward pressure on the bank's ratings. Improved economic capitalisation and a significant reduction in the perceived level of related-party lending would also be positive rating drivers. The bank's Ba3 local currency deposit rating is likely to move in tandem with its BCA of Ba3. The B3 foreign currency deposit and B1 foreign currency debt ratings are constrained by the country ceilings for Ukraine, and can be upgraded only if Moody's upgrades these country ceilings.
Negative pressure could be exerted on Privatbank's BFSR and local currency deposit rating following a substantial deterioration of asset quality beyond current levels, a significant rise in related-party transactions and/or liquidity problems. Weakening market positions or significant reputation damage -- to either the bank or its major shareholders -- could also have negative rating implications. The bank's debt and deposit ratings, being constrained by the respective country ceilings, are likely to follow movements in those ceilings.
Moody's previous rating action on Privatbank was implemented on 12 October 2010, when Moody's changed the outlook on the B3 long-term foreign currency deposit rating and B1 foreign currency debt rating of Privatbank to stable from negative.
The principal methodologies used in rating Privatbank were "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.
Headquartered in Dnepropetrovsk, Ukraine, Privatbank reported audited IFRS total assets, equity and net income of USD11.23 billion, USD1.49 billion and USD166 million, respectively at YE2009.
