BAKU, Azerbaijan, June 8
By Tamilla Mammadova – Trend:
Fitch Ratings has revised Georgia-based JSC Terabank's Outlook to Stable from Negative while affirming the bank's Long-Term Issuer Default Rating (IDR) at 'B+', Trend reports via the Fitch.
The revision of the Outlook to Stable reflects reduced pressures on Terabank's credit profile both from the COVID-19 pandemic and contraction of the Georgian economy in 2020 by 6.2 percent.
"We expect an economic recovery in 2021 (4.3 percent forecast by Fitch) to support the bank's revenue, which should be sufficient to cover residual credit risks from the pandemic without jeopardizing the bank's capital position," the report said.
The IDR of Terabank is driven by its standalone profile, as captured by its Viability Rating (VR) of 'b+'. The VR factors in the bank's limited franchise in the concentrated Georgian banking sector with a 2.5 percent share of loans at end of 1Q2021 and a large credit exposure to SME and micro-lending segments (58 percent of gross loans), which are vulnerable to the pandemic. The rating also reflects the bank's adequate capital and liquidity buffers.
Impaired loans were 4.1 percent of gross loans at end of 1Q2021. Stage 2 loans increased to 17 percent of gross loans at end of 1Q2021 from 3 percent at end of 2019.
Impaired loans were only moderately covered by specific loan loss allowances (LLAs) at 34 percent, reflecting the bank's reliance on collateral. At the same time, coverage of impaired loans by total LLAs was a reasonable 98 percent.
Operating profit declined to 0.3 percent of regulatory risk-weighted assets (RWAs) in 2020 from 2.5 percent in 2019.
This was mainly driven by an increase in loan impairment charges (LICs) to 2.3 percent of gross loans in 2020, from below 1 percent in 2017-2019. Pre-impairment profit was a reasonable 2.8 percent of gross loans in 2020, albeit down from 3.3 percent in 2019, due to narrowing interest margins. The cost-to-income ratio improved to 52 percent in 2020 from 55 percent in 2019, supported by reduced personnel and marketing expenses.
Terabank's Fitch core capital (FCC) ratio declined to 13 percent at end of 2020 from 15 percent at end of 2019, driven by resumed loan growth amid lari devaluation and weak internal capital generation. Its regulatory Tier 1 ratio declined to 9.7 percent at end of 1Q2021 from 12.9 percent at end of 2019.
This was reasonably above the minimum requirement of 8.2 percent at end of 1Q2021 that was relaxed by the National Bank of Georgia (NBG) due to the pandemic.
Terabank is primarily funded by customer deposits (76 percent of end-2020 liabilities), which are diversified between retail (36 percent), corporate (29 percent) and state-related (11 percent) clients. Refinancing risks are manageable in light of moderate upcoming wholesale funding maturities (4 percent of liabilities in the next 12 months).
The bank's liquidity buffer (cash, NBG placements net of obligatory reserves, short-term interbank, and unencumbered securities and loans eligible for repo) covered a reasonable 19 percent of customer accounts at end of 1Q2021.
The Support Rating of '5' and Support Rating Floor of 'No Floor' reflects the bank's limited systemic importance and the recent introduction of resolution legislation in the country, and, consequently.
Fitch's view that state support cannot be relied upon. Potential support from private shareholders is also not factored into the ratings.
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