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Asset quality of Georgian TBC Leasing' deteriorates in 9M2020

Business Materials 21 January 2021 16:59
Asset quality of Georgian TBC Leasing' deteriorates in 9M2020

BAKU, Azerbaijan, Jan. 21

By Tamilla Mammadova – Trend:

Fitch Ratings has affirmed Georgian JSC TBC Leasing's (TBCL) Long-Term Issuer Default Rating (IDR) at 'BB-', with a Negative Outlook, Trend reports via the Fitch.

TBCL operates solely in Georgia, its domestic market, and is the market leader in leasing. The company mainly provides financial leasing to the corporate clientele of TBC Bank (BB-/Negative) as well as to SMEs, microbusinesses, and individuals.

"TBCL's IDRs are driven by support from TBC Bank. The Negative Outlook mirrors that on its parent. Fitch's view of a high probability of support is based on high reputational implications of a subsidiary default for TBC Bank, as this would significantly damage its reputation with its key wholesale lenders, undermining its current strategic focus and growth potential," the report said.

Fitch's view is also underpinned by full ownership by, close integration with and the record of capital and funding support from TBC Bank, which has provided capital and funding support over the years.

To support TBCL's growth, the parent has injected new equity on several occasions (most recently in December 2019) and has already approved additional available capital of 2.5 million lari to be disbursed based on TBCL's needs. TBC Bank provides TBCL with subordinated and senior loans as well as letters of support to enable third-party borrowing. It also facilitates TBCL's bond placements.

TBCL's standalone rating profile does not drive the IDR as it is constrained by a monoline business model, franchise strength, weak asset quality, high-risk appetite, and tolerance for elevated leverage. Positively, TBCL's profitability is high and above TBC Bank's target, highlighting TBCL's positive contribution to the parent's performance. TBCL's clients are often higher-risk borrowers than those of TBC Bank, but this is partly mitigated by access to liquid collateral and from the adequate pricing of risk.

Planned growth in 2020 and new products did not materialize due to the adverse economic impact of the pandemic and the consequent cautious approach adopted by TBC Bank. TBCL aligns its strategy and risk policies with those of the parent, although TBCL's management is independent in its operational decisions.

Asset quality deteriorated in 9M2020, but it benefits from sound collateral coverage.

TBCL's senior secured debt rating is equalized with the company's Long-Term IDR, notwithstanding the bond's secured nature and an outstanding buffer of contractually subordinated debt.

"This reflects high uncertainty on asset recoveries in a scenario where both TBCL and TBC Bank are in default, a scenario that would likely be accompanied by considerable macroeconomic stress in the country," the report said.

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