Azerbaijan, Baku, Aug.2 /Trend A.Badalova/
Fitch Ratings has affirmed Georgia's VTB Bank Long-term Issuer Default Ratings (IDR) at 'BB' and Liberty Bank's (LB) Long-term IDR at 'B', both with Stable Outlooks, the agency reported on Thursday. At the same time, the agency has upgraded LB's Viability Rating (VR) to 'b' from 'b-'.
According to the report, the upgrade of LB's VR reflects the strengthening of the bank's capitalisation and the extended track record of sound performance under new management since the takeover in 2009.
"LB's VR and IDRs reflect the bank's sound recent performance in terms of both pre-impairment profitability and the quality of non-legacy loans, its solid capitalisation, currently comfortable liquidity, the absence of debt funding, the predominantly local currency balance sheet and good standards of management, governance and disclosure," the report said.
According to the report, the bank's earning capacity is improving on the back of rapid net loan growth (104 percent in 2011; 20 percent in the first half of 2012), which has improved scale efficiencies, reasonable asset quality, and a wide net interest margin, which is supported by the bank's focus on mass retail banking. "Non-performing loans in the non-legacy loan book were a moderate 3.0 percent at end-Q112, while a large majority of exposures in the pre-acquisition legacy book (10 percent of loans at end of the first quarter of 2012) were impaired, Fitch Ratings said.
"Positively, and in contrast to other rated Georgian banks, LB's funding is predominantly GEL-denominated (83 percent of the first half of 2012 customer deposits), as a result of which the majority of customer loans are also issued in local currency," the report said. Fitch Ratings considers LB's liquidity position as comfortable, with highly liquid assets (cash, interbank assets and unpledged government securities) covering 32 percent of customer funding at end of the first half of 2012. However, significant reliance on government and municipal funding, can make funding levels somewhat volatile, the agency believes.
According to Fitch, VTBG's Long-term IDR could be upgraded or downgraded if there was a similar change in Georgia's Country Ceiling and sovereign ratings. "The rating could also be downgraded if there was a multi-notch downgrade of VTB, or any clear indication that Russian government support for VTB would not be allowed to flow through to its foreign subsidiaries, neither of which is currently anticipated," the report said.
"The affirmation of VTBG's VR at 'b-' reflects the bank's small size and modest franchise, concentrated balance sheet, limited track record of reasonable credit underwriting and significant proportion of foreign currency lending. However, the rating also considers the bank's return to profitability in 2011 as a result of significantly lower impairment charges and an increase in cheaper parent funding, and currently acceptable capitalisation and liquidity", the report said.
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