Baku, Azerbaijan, Dec. 19
By Nigar Guliyeva – Trend:
Fitch Ratings has upgraded Georgia's Basisbank's (Basis) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B' and affirmed Cartu Bank's (Cartu) and Halyk Bank Georgia's (HBG) IDRs at 'B+' and 'BB-', respectively.
Fitch has revised the Outlook on Cartu to Negative from Stable. The Outlooks on Basis and HBG are Stable. It also upgraded Basis's Viability Rating (VR) to 'b+' from 'b' and affirmed Cartu's VR at 'b+'. A full list of rating actions is at the end of this rating action commentary.
The agency states that Basis's and Cartu's IDRs are driven by the banks' standalone creditworthiness, as expressed by their VRs.
"The upgrade of Basis's Long-Term Foreign Currency IDR reflects the upgrade of the bank's VR. The latter captures the bank's extended track record of profitable growth, while maintaining reasonable asset quality metrics and a solid capital cushion.
The affirmation of Cartu's ratings and revision of the Outlook to Negative factors in the pressures the bank faces as a result of deteriorating asset quality, which could also negatively impact performance and capitalisation," the message reads.
Basis's and Cartu's VRs also consider high loan dollarisation levels (end-3Q17: 68% and 71%, respectively), sizeable balance sheet concentrations, the risks associated with largely unseasoned loan books after recent rapid growth and franchise limitations. The ratings also factor in both banks' reasonable profitability metrics, sizeable equity cushions and moderate refinancing risks.
The agency reported that HBG's IDRs are driven by the potential support it may receive, if needed, from its sole shareholder Halyk Bank of Kazakhstan (HBK, BB/Stable).
"The one-notch differential between HBK's and HBG's IDRs reflects the cross-border nature of the parent-subsidiary relationship, and the so far limited track record and contribution of the Georgian subsidiary to overall group performance. The Stable Outlook on HBG mirrors that on the parent," the message reads.
Fitch has not assigned a VR to HBG because of its high management and operational integration with HBK and significant reliance on parent funding.
At end-1H17, Basis's non-performing loans (NPLs, overdue more than 90 days) remained low at 2.2% of loans, fully covered by reserves. Performing restructured loans contributed a further 4.4% of loans (13% of equity) and were weakly provisioned.
Profitability metrics have been good, supported by still wide margins, although these are decreasing due to high competition, and growing economies of scale. Low risk costs (the annualised loan impairment charges/average gross loans ratio was 1% in 9M17, according to regulatory accounts) also support the bottom line, with solid annualised ROAA and ROAE of 2.4% and 13.1%, respectively, in 9M17 (2016: 2.9% and 15.4%).
Fitch expects Basis's profitability to continue to benefit from lending growth, while asset quality trends remain key to performance.
The agency said that NPLs at Cartu grew to 12.9% of end-1H17 loans from 11.7% at end-2016, covered 82% by reserves. These were mostly from the corporate lending segment and included legacy exposures originated in 2011 (43% of the total NPLs). Regulatory impaired loans grew to a large 33% at end-3Q17 from 22% at end-2016 and reserve coverage was a modest 42%. Regulatory impaired loans captured most of the major exposures, which Fitch has identified to be of higher risk, mainly due to the borrowers' weak or deteriorating financial profiles. These exposures represented 30% of loans or, net of specific reserves, were equal to 1.3x of end-3Q17 equity.
Fitch expects that provisioning requirements will remain high given weakening asset quality and large unreserved problem assets that will keep performance under pressure.