BELARUS NEWS AND ANALYSIS

DATE:

13/11/2008

Fitch Affirms Belarusbank at 'B-'

Fitch Ratings-London/Moscow- 12 November 2008: Fitch Ratings has today affirmed Belarusbank's (BBK) Long-term foreign currency Issuer Default rating (IDR) at 'B-'(B minus). A full list of rating actions follows at the end of this commentary.

The rating action reflects Fitch's current opinion that the impact of international financial market turmoil and a likely global recession on Belarus's public finances, economy and banking sector will probably be within the tolerance level of the 'B-'(B minus) ratings currently assigned to the country's state-owned banks. Fitch also notes that external events have as yet had a limited negative influence on BBK's performance and financial position.

BBK's stand-alone credit profile benefits from its dominant position in key sectors of the domestic market and the stability of its customer base. Improved internal capital generation since 2006 on the back of a reduced tax burden and adequate asset quality to date (loans overdue by 90 days at end-H108: 1.4%) are also viewed as a positive for the bank's stand-alone financial position. Customer funding is mainly composed of retail deposits (end-H108: 52%) and government funding (23%), while foreign funding generally represents a small portion of the bank's liabilities, limiting refinancing risk.

BBK is actively engaged in state lending programmes, in particular in the retail sector, with some of them bearing concessional interest rates. BBK's corporate loan book is widely represented by the leading domestic state-owned enterprises from the manufacturing industry. Although concentrations are high, most of the large companies are state-owned and may be able to receive support from the government, in case of need. Nevertheless, Fitch notes that the challenging operating environment, low loan impairment reserve coverage, weak cost efficiency and only moderate capitalisation are constraints for BBK's stand-alone credit profile.

Ongoing global deleveraging has highlighted the Belarusian economy's weak external liquidity and high dollarization. Fitch notes that the Belarusian authorities have already reached an agreement with Russia to receive a USD2bn long-term loan and opened negotiations with the IMF for a support package. The agreement with Russia and potential support from the IMF could bolster the sovereign's financial position, and therefore its ability to provide support to the country's state-owned banks, but the ability to provide such support could be constrained by further negative shocks.

In Fitch's view, BBK currently merits a 'B-' Long-term IDR based on its stand-alone financial strength. Furthermore, the rating is underpinned by the bank's Support Rating Floor. The latter reflects the Belarusian authorities' likely very high propensity to support state-owned banks, but also constraints on the sovereign's ability to provide such support, in particular in view of the considerable size of the banks and their foreign currency obligations relative to the sovereign's foreign currency reserves. BBK's ratings could come under downward pressure if Belarusian public and/or external finances deteriorate significantly and the operating environment worsens, which could result in both a weaker stand-alone profile of the bank and the reduced ability of the sovereign to provide support.

BBK is the largest universal bank in Belarus in terms of assets, holding a 41% market share at end-H108. BBK has a strong presence in both retail and corporate segments: at end-H108 the bank had a 59% market share in retail deposits, 70% of the retail lending market, and 32% of corporate lending. A total 99.8% of the bank's equity is held by the state.

Rating actions:

-Long-term foreign currency IDR: affirmed at 'B-' (B minus); Outlook Stable

-Short-term foreign currency IDR: affirmed at 'B'

-Support rating: affirmed at '5'

-Individual rating: affirmed at 'D/E'

-Support Rating Floor: affirmed at 'B-' (B minus)

Contact: James Watson, Moscow; Tel.: +7 495 956 9901.

Source:

http://www.cbonds.info/all/eng/news/index.phtml/params/id/415193

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