BAKU, Azerbaijan, March 3
By Tamilla Mammadova – Trend:
The international rating agency S&P Global Ratings (S&P) has downgraded the outlook for the rating of VTB Bank (Georgia) to negative from stable, Trend reports via the S&P.
At the same time, S&P has affirmed the bank's long-term and short-term credit ratings at 'BB / B'.
"The change in the bank's outlook is due to the deterioration of the outlook on Georgia's sovereign ratings, which was changed last week from stable to negative, reflecting the growing risks for the state's ability to generate foreign currency profits to service its external obligations," the agency said in a press release.
At the same time, S&P still views VTB Bank (Georgia) as a strategically important subsidiary of the Russian-based VTB Bank OJSC, which is likely to continue supporting its Georgian branch.
"For example, in 2020, the parent company provided the subsidiary with 20 million lari (6.02 million), maintaining the capital adequacy ratio of the Georgian bank. We usually value the strategic subsidiary of the group three notches higher than its own credit profile (SACP), which in the case of VTB Bank (Georgia) is "b". We rarely rate a financial institution higher than the sovereign rating of the country of its location," the statement says.
S&P expects the bank to maintain adequate capitalization with a RAC that is likely to remain stable above 7 percent over the next 12 months. Although the dollarization of the bank's balance sheet decreased in 2020 to 43 percent of the gross loan portfolio from 46 percent a year earlier, it remains high in the international context and may affect the bank's risk profile.
"In 2020, VTB Bank (Georgia) showed higher-than-expected business growth: the loan portfolio expanded by about 21 percent, which is partially eroded by the devaluation of the local currency, but supported by the growth of state-subsidized mortgage loans. Although we expect NPLs to remain medium to high single-digit levels through the end of 2022," the report says.
The agency may take negative rating action against the Bank in the next 12 months if Georgia's sovereign rating is downgraded. Such an action is also possible, it will be seen that the relative importance of the bank to its parent company has significantly decreased, in particular, if the interest or ability of OJSC VTB Bank to provide emergency financial support to VTB Georgia decreases.
At the same time, the outlook on the bank's rating may be revised to stable, if there is a similar rating action with respect to sovereign debt.
"In this case, a revision of the forecast will be possible only if we do not see significant pressure on the bank's creditworthiness and the parent bank remains willing to support the subsidiary," S&P notes.
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