14 Jan 2011 17:07

Moody's upgrades Bank of Georgia's FC deposit rating to B1 from B3; outlook stable

LIMASSOL. Jan 14 (Interfax) - On Friday, Moody's Investors Service upgraded the long-term foreign currency deposit rating of the Bank of Georgia (BoG) by two notches to B1 from B3.

The agency said in a statement: "At the same time, Moody's has affirmed the bank's D- standalone bank financial strength rating (BFSR), which maps to a Ba3 baseline credit assessment (BCA), and has changed its outlook to stable from negative. Similarly, the bank's Ba3 long-term global local currency (GLC) deposit and senior unsecured debt ratings were confirmed with a stable outlook. All of the bank's short-term ratings were affirmed as Not-Prime. This rating action concludes the review for possible upgrade of the bank's ratings initiated on 6 October 2010 following the assignment of ratings to the government of Georgia by Moody's."


The statement said: "The upgrade of BoG's long-term foreign-currency deposit rating is in line with the ceiling assigned for such deposits in Georgia. This rating remains constrained by the B1 ceiling for such deposits in the country. The change in outlook to stable from negative on the bank's BFSR is driven by: (i) expectations that credit conditions in the country will continue to stabilise, following two difficult years; (ii) expectations that lower credit charges and goodwill write-downs will allow the bank to report good profits in 2010; (iii) reduced pressures on the bank's capitalisation in light of improved profitability and easing asset quality pressures; and (iv) easing political pressures both domestically and regionally.

"Although Georgia's operating environment remains challenging, Moody's notes that economic growth resumed in 2010 and is projected to continue in 2011, thus supporting credit conditions. A 65% contraction in BoG's credit charges for the nine months to September 2010 suggests that asset quality pressures have been easing.

"Nevertheless, in Moody's view, a moderate increase in the absolute size of problem loans during 2010 cannot be ruled out as the bank's loan book absorbs the full impact of the 2009 recession. Even though credit charges will remain above historical averages, the brunt of the provisioning burden is believed to have been realised in 2009. Moody's expects profitability to recover to reasonable levels because high goodwill write-downs recorded in 2009 (mainly in relation to BoG's Ukrainian subsidiary) are unlikely to be repeated, credit charges are expected to be lower, while the resumption of growth supports the bank's revenue streams.

"Moreover, signs of improving credit conditions and a return to profitability are alleviating pressures on the bank's capital adequacy ratios which remain strong (15.7% according to the National Bank of Georgia's standards -- significantly higher under Basel I). Finally, political risk, and by extension event risk, seem to be easing. Following the May 2010 municipal elections, the country's ruling party appears to have consolidated its political dominance as the opposition remains fractured and the street protests witnessed in 2009 have ceased. Although relations with Russia remain poor, the risk of renewed hostilities currently appears remote.

"Moody's notes that BoG's long-term GLC deposit rating does not receive any additional uplift from its Ba3 BCA, despite Moody's assessment of high systemic support, as Georgia's systemic support indicator (SSI) has been set at Ba3 (the same level as the country's local currency debt rating). As the outlook on the bank's BFSR has been changed to stable from negative, the outlook on the bank's GLC deposit and senior unsecured debt ratings is also set at stable. The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

"Moody's previous rating action on Bank of Georgia was implemented on 6 October 2010, when the rating agency placed the bank's long-term GLC deposit, foreign currency deposit and senior unsecured debt ratings on review for a possible upgrade following the assignment of Moody's rating to the government of Georgia.

"Headquartered in Tbilisi in Georgia, BoG reported total assets (un-audited) of GEL3.5 billion (USD1.9 billion) as of September 2010."