Fitch Places PrivatBank's 'CCC' IDR on RWE, Downgrades VR to 'f'


20 Dec 2016 10:10 AM


Fitch Ratings-London-20 December 2016: Fitch Ratings has placed PJSC CB PrivatBank's (Privat) 'CCC' Long-Term Issuer Default Ratings (IDRs) and senior debt rating on Rating Watch Evolving (RWE), and downgraded its Viability Rating (VR) to 'f' from 'ccc'. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
The rating actions follow the announcement on 18 December by the Ukrainian authorities that Privat will be nationalised in order to address its solvency problems. The downgrade of the VR to 'f' reflects Fitch's view that the bank has failed, given the scale of its reported recapitalisation needs. The RWE on the IDRs and senior debt rating reflects uncertainty about whether losses will be imposed on senior creditors as part of the recapitalisation process.

The National Bank of Ukraine (NBU) has assessed Privat's capital shortfall at UAH148bn, which is equal to 5.5x the bank's regulatory capital at end-3Q16, or 6% of Ukraine's 2017F GDP. Privat's liquidity has also come under pressure from recent deposit outflows. The NBU has announced capital and liquidity support measures to ensure that Privat can continue to service its customer accounts, but the authorities have not yet clarified whether other creditors, including bondholders, might absorb losses.

At end-3Q16, customer funding accounted for 81% of Privat's liabilities, with the majority of non-customer funding accounted for by facilities from the NBU. Private wholesale funding comprises mainly the bank's senior and subordinated Eurobonds, respectively USD337m (UAH8.7bn equivalent) and USD150m (UAH3.9bn).

The affirmation of the Support Rating at '5' and the Support Rating Floor at 'No Floor', like the RWE on the IDRs and debt rating, reflects uncertainty about whether state support will be sufficient to avert losses for senior creditors. However, these ratings also reflects the non-strategic nature of the state ownership of Privat - in contrast to JSC The State Export-Import Bank of Ukraine (Ukreximbank) and JSC State Savings Bank of Ukraine (Oschadbank) - and the limited ability of the authorities to provide foreign currency support in case of need.

At end-3Q16, Privat's foreign currency obligations were USD4.8bn, accounting for 52% of total liabilities, with USD4bn of this due to depositors. This compares with the country's international reserves of USD15.3bn at end-11M16. The authorities may support Privat's foreign currency position by injecting USD-linked government bonds to recapitalise the bank. However, the combination of expensive deposit funding and holdings of potentially lower rate government bonds could put considerable pressure on the bank's margins and operating performance after recapitalisation, even if its balance sheet solvency is restored.

RATING SENSITIVITIES
Privat's Long-Term IDRs and senior debt rating could be upgraded to 'B-' if losses are not imposed on senior creditors as part of the recapitalisation process, and the latter is sufficient to strengthen the bank's financial profile to an extent consistent with a 'B-' rating.

Privat's IDRs will be downgraded to 'RD' (Restricted Default) if some of the bank's senior, third-party, non-government creditors are bailed in as part of the recapitalisation process.

The rating actions are as follows:

Long-Term Foreign and Local Currency IDRs: 'CCC', placed on RWE
Short-Term Foreign Currency IDR: 'C', placed on RWE
Viability Rating: downgraded to 'f' from 'ccc'
Senior unsecured debt of UK SPV Credit Finance plc: 'CCC'/Recovery Rating 'RR4', placed on RWE
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
National Long-Term Rating: 'BB(ukr)', placed on RWE

Contact:
Primary Analyst
Aslan Tavitov
Director
+44 20 3530 1788
Fitch Ratings Limited
30 North Colonnade
London E14 5GN

Secondary Analyst
Lindsey Liddell
Director
+44 20 3530 1008

Committee Chairperson
Alexander Danilov
Senior Director
+7 495 956 2408

Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com.

Additional information is available at www.fitchratings.com.

Applicable Criteria
Global Bank Rating Criteria (pub. 25 Nov 2016)

Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy


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