Rating Agencies Positive on Ukrainian Banks

Moody’s said yesterday that it put twenty-two banks on a review list for upgrades; the list includes banks currently have B2 ratings on deposits in foreign currency. Among the banks are Raiffeisen Bank Aval (BAVL: HOLD), Bank Forum (FORM: BUY), Nadra Bank (NADR: N/R), Ukrsotsbank (USCB: BUY). Meanwhile, an S&P representative said improvement in management quality, business diversification, and profitability provides a strong grounding for ratings upgrades in the mid-term. Alexander Viktorov: After peaking in mid-summer 2007, the banks in our coverage universe have seen their share prices drop by 30-40%, which has sent the banks to historically low valuation levels, seen last in 2004 before the M&A frenzy, doubling upsides. Ukrainian banks currently trade at an average P/B ’08E of around 2.0x. These recent statements by ratings agencies confirm our view that the market’s perception of the global credit crunch’s impact on Ukraine’s banking system was overstated. In the first two months of 2008, Ukrainian banks have extended their loan portfolios by 78% yoy (vs. 71% yoy growth in 2M07) and profits by 91% yoy (vs. 71% yoy in 2M07).