Fitch Comments on BPS-Bank Outlook Revision

Fitch Ratings-London/Moscow-07 July 2009: Fitch Ratings says that the revision of the Outlook on Belarus-based BPS-Bank (BPS) to Negative from Stable, announced by the agency earlier today, was part of a more general review of Belarusian state banks. The rating action took into account the heightened risks stemming from the weaker outlook for Belarusian sovereign finances and the Belarusian economy (for further details, please see the 7 July 2009 comment entitled "Fitch Revises Four Belarusian State-Owned Banks' Outlooks to Negative" , which is available on the agency's public website, A full breakdown of BPS's ratings is provided at the end of this comment.

BPS's Long- and Short-term IDRs currently reflect its stand-alone financial position, but are also underpinned by potential support from the Belarusian authorities, given its state ownership and significant size in the banking system. The Negative Outlook on BPS, as for the three other state-owned banks, reflects the weakening ability of the Belarusian authorities to support the banking system, in case of need. It also takes into account the potential for a marked deterioration in the bank's stand-alone financial profile in case of a worsened economic downturn, reduced state support for the corporate sector or a further marked depreciation of the Belarusian Rouble (BYR).

BPS reported low non-performing loans (NPLs, defined as loans overdue by 90 days or more) of 0.8% at end-May 2009, however, Fitch notes that, as with other Belarusian banks, additional impairment is likely to crystallise as the operating environment worsens. Fitch also notes that the high proportion of foreign currency lending (52% at end-Q109) and the large concentration by borrower (the top-20 borrowers accounted for 46% of total loans at end-Q109) could heighten credit risks, in particular in the event of another sharp BYR devaluation. At the same time, Fitch notes the moderate proportion of lending within government programmes, relative to other state-owned banks, the well diversified loan book by industry and the reasonable level of reserves created for impairment under IFRS (4.9% at end-Q109).

The bank's Tier 1 and total regulatory capital ratios stood at 11.7% and 16.7% , respectively, at end-May 2009. Fitch notes that at this level of capitalisation, BPS has only a moderate ability to increate its provisioning level to absorb future credit-related losses: the impairment reserves/loans ratio could increase to an estimated 13% from the end-May 2009 level of 1.6% before the bank's capital ratios would have fallen to the regulatory minimum. However, BPS's loss absorption capacity would be reduced significantly in the event of a significant BYR devaluation given BPS's high share of FX loans and the inflation of BYR-denominated risk weighted assets that would result from a local currency depreciation.

At the same time, Fitch acknowledges BPS's currently reasonable liquidity. At end-May 2009, the bank had BYR737bn in liquid assets, which amounted to 18% of total assets, or 24% of customer funding at the same date.

BPS is the fourth largest bank in Belarus in terms of assets, with market shares in system assets and retail deposits of 6.5% and 8.2%, respectively, at end-Q109. BPS is 93.3% owned by the State Property Committee of the Republic of Belarus, with another 2.6% held by state-owned enterprises (SOEs) and the remaining equity broadly dispersed among individuals and private companies.The rating actions taken earlier today were as follows:

Long-term IDR: affirmed at 'B-'; Outlook revised to Negative from Stable Short-term IDR: affirmed at 'B' Support Rating: affirmed at '5' Individual Rating: affirmed at 'D/E' Support Rating Floor: affirmed at 'B-'

Contacts: Svetlana Petrischeva Tel: +44 (0) 20 7682 71 31; James Watson, Moscow, Tel: +7 495 956 9901.

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