| Moody's concludes the review of Bank of Georgia ratings (Georgia) |
|
29/09/2009 15:53 (53 Day 07:13 minutes ago) | |||||
|
The FINANCIAL -- Moody's Investors Service has on September 29 confirmed the Bank of Georgia 's financial strength rating (BFSR), local currency deposit ratings, and senior unsecured debt rating at their current levels, thereby concluding the review the rating agency initiated on 8 June 2009.
The outlook on the long-term foreign currency deposit rating was changed to stable from negative; while all other ratings were assigned a negative outlook.
"Today's confirmation of the ratings is based on Moody's view that Bank of Georgia benefits from sufficient capitalisation to absorb anticipated levels of stress, despite the deteriorating operating environment in Georgia and the effect of weakening credit conditions on the bank's asset quality and performance in H1 2009," says Stathis Kyriakides, AVP-Analyst in Moody's Financial Institutions Group. Domestic political tension, which culminated in opposition-led (but predominantly peaceful) street demonstrations earlier in the year, has also tapered off. Demonstrations do not appear to have affected the disbursement of donor countries' pledged funds in a material way. As at June 2009, Georgia had already drawn down 15% and entered into agreements committing an additional 25% of the total USD4.5 billion of pledged funds -- USD1,105 million of which earmarked for the financial sector.
Partly through such pledged funding, Bank of Georgia has had access to USD200 million in funding in 2009 (further to the USD60 million raised at YE2008). However, although credit charges remained high in H1 2009 (nearly 30%relating to the bank's acquisition of the Ukrainian Universal Bank for Development and Partnership in 2007, subsequently renamed to BG Bank last year), Moody's notes that the bank was able to generate a marginal profit of GEL409,000 (USD247,000) compared with the GEL1.4 million (USD840,000) loss recorded at YE2008.
"The negative outlook on the bank's BFSR, local currency deposit rating and senior unsecured debt rating reflects Moody's view that asset quality pressure will probably lead to sustained pressure on credit charges for the foreseeable future," says Kyriakides. The rating agency explains that ongoing pressure on credit charges is due to the central bank's progressive provisioning requirements on already delinquent loans and the likelihood of further upward pressure on non-performing loans.
Although the creditworthiness of sectors earmarked to receive economic aid is likely to improve, Moody's notes that the credit standing of retail customers may continue to weaken. Factors affecting retail customers' credit standing -- other than weaker economic conditions and the rise in unemployment -- include a decline in inward remittances (from the Georgian diaspora), which supplement household income, and a delay in the benefits of international aid feeding through to the population. Signs of economic stabilisation in the country are not yet sufficient to ensure credit conditions will improve in the near term. "The evolution of the bank's ratings will depend on developments in the operating environment and its own intrinsic strength," adds Kyriakides.
Moody's cautions that, despite currently subdued domestic politics, the events of August 2008 and the subsequent stand-off in the country's relations with Russia (notwithstanding Western aid) are indicative of Georgia's elevated external political risk.
Moody's last rating action on the Bank of Georgia was implemented on 8 June 2009, when the bank's D- BFSR and Ba3 global local currency rating and senior unsecured debt rating were placed on review for possible downgrade.
|
|
|
