Fitch confirms CCC rating for OSCHAD, EXIMUK bonds

Fitch Ratings reported on Aug. 8 it has affirmed its “CCC” ratings for the senior Eurobonds of Ukraine’s State Export-Import Bank (Ukreximbank, EXIMUK) and State Savings Bank (Oschadbank, OSCHAD). Fitch explained that the ratings “reflect weaknesses in both banks’ credit profiles, in particular, high loan impairment, weak pre-impairment profitability and low capital ratios.” The bank’s credit profiles “are strongly linked with that of the sovereign due to their large exposure to sovereign debt and the public sector,” Fitch said.

With additional equity injections in early 2016, Oschadbank’s capital adequacy increased to 12.8% as of end-1Q16, while the adequacy of Ukreximbank was 9.2% as of end-2Q16, which is below the regulatory minimum (10%). For this reason, Ukreximbank “remained reliant on the sector-wide regulatory forbearance with respect to non-compliance with capital requirements,” Fitch highlighted.

At the same time, Fitch admitted that both banks’ foreign currency liquidity was comfortably sufficient to meet near-term wholesale funding maturities. Their future liquidity in foreign currency highly depends on stability of their dollar deposits, according to the press release.

Alexander Paraschiy: Whatever the banks’ specific risks, their credit rating is the same as for the Ukrainian government (UKRAIN papers are also rated “CCC” by Fitch). The Ukrainian government seems to remain strongly committed to support its related banks’ solvency and capital adequacy, which means the credit risks of their notes (including foreign currency notes) is very close to the risk of government paper. Currently, EXIMUK and OSCHAD bonds trade at a 130-200 bp spead to the sovereign curve, which do not look justified to us.