Azerbaijan , Baku, Aug.9 / Trend, N.Ismayilova /
Fitch Ratings-London/Moscow-08 August 2011: Fitch Ratings has affirmed three Georgian banks' Long-term Issuer Default Ratings (IDR). Bank of Georgia (BoG) and TBC Bank have been affirmed at 'B+' with a Stable Outlook, and ProCredit Bank (Georgia) (PCBG) at 'BB-' with a Positive Outlook. At the same time, the agency has upgraded TBC's Viability Rating (VR) to 'b+' from 'b', bringing it in line with BoG and PCBG.
The rating actions reflect Fitch's view that the Georgian economy's recovery is likely to support the country's banks' stable performance in the near to medium term. At the same time, increased competition for both loans and deposits is likely to result in a gradual reduction of currently high margins, and also increases the risk of a weakening of loan underwriting standards.
"The Georgian banking system is generally well-capitalised and liquid, and now mainly deposit-funded. Asset quality has also improved over the past two years as a result of loan work-outs and write-offs," the statement says.
The upgrade of TBC's VR reflects the improvement in the bank's asset quality metrics, sound performance indicators, its currently strong capital and liquidity positions and limited refinancing risk. Fitch also notes TBC's more balanced funding structure, which has been supported by substantial inflows of customer funding.
At end-Q111, the bank reported loans overdue by more than 90 days (NPLs) at around 1.2% of total loans, with another 7% of loans being restructured (down from 2.9% and 17%, respectively, at end-2009 as a result of work-outs and write-offs). FX-denominated loans remained a high 74% of total loans at end-Q111. Pre-impairment profits were equal to a healthy 32% of equity in Q111 (2010: 26%), supported by the bank's loan growth (by 32% in 2010) and still solid lending rates. However, Fitch notes some pressure on margins due to intensified competition. TBC's capitalisation remained solid with an equity/assets ratio of 16.2% at end-Q111 (the bank does not calculate interim consolidated Basel capital ratios).
TBC's 'B+' Long-term IDR is now driven by the bank's VR. At the same time, the IDR also continues to be underpinned by potential support from international financial institutions (IFIs), which jointly own a majority (55%) stake in the bank. Fitch continues to believe that the probability that TBC may receive support from IFIs if needed is significant.
BoG's ratings reflect the bank's strong franchise, solid capital position, improved asset quality, stable liquidity and profitability. The bank's more balanced funding structure, supported by substantial inflows of customer funding, is also among the positives. However, the ratings also factor in the high level of foreign-currency lending, significant portion of non-core assets and concentrated loan book.
PCBG's 'BB-' IDRs are driven by potential support from its majority owner, Germany's ProCredit Holding AG (PCH; 'BBB-'/Stable; 100% stake in PCBG), and constrained by the Georgian Country Ceiling of 'BB-'. In Fitch's view, PCH would have a strong propensity to support PCBG, but Georgian transfer and convertibility risks limit the extent to which this support can be factored into the ratings. PCBG's Long-term IDRs are likely to move in line with the Country Ceiling.
The Positive Outlook on PCBG's Long-term IDRs reflects the sovereign's rating Outlook and the likelihood of an upgrade of Georgia's Country Ceiling of 'BB-', should the sovereign rating be upgraded.
PCBG's 'b+' Viability Rating is supported by its significantly superior recent asset quality performance relative to other banks in the sector.