OREANDA-NEWS. On April 09, 2009 Fitch Ratings has affirmed Belgazprombank’s (BGB) Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook and upgraded its Individual Rating to ‘D/E’ from ‘E’. Fitch has simultaneously affirmed BGB’s other ratings, reported the press-centre of Belgazprombank. 

BGB's IDRs and Support Rating of ‘4’ reflect Fitch's view on the likelihood of support from the bank's controlling shareholders, OAO Gazprom (Gazprom, 'BBB'/Negative) and affiliated JSB Gazprombank. Fitch believes that Gazprom’s ability and propensity to provide support to BGB, in case of need, are strong. However, Belarusian transfer and convertibility risks may limit the extent to which BGB could utilise such support, and therefore impose constraints on BGB’s IDRs and Support Rating.

The upgrade of BGB's Individual Rating recognises the bank’s significantly improved loss absorption capacity, the bank’s progress in reducing the concentration of its loan book, continued strong profitability, healthy liquidity and good-to-date reported asset quality. BGB's Individual Rating also reflects its strong track record in SME lending, the special role played by the bank in Gazprom’s settlement system and reasonable risk management systems.

However, BGB’s Individual Rating also takes into account the challenging operating environment, its relatively limited franchise, a high share of wholesale and foreign currency funding, the unseasoned loan portfolio and a high share of foreign currency lending. Individual Ratings reflect a bank's standalone risk and do not take account of the potential for external support.

BGB grew its loan portfolio by 56% in 2008 (99% in 2007) and reduced exposure to the largest 20 borrowers to 0.4x of equity at end-2008 from 2.3x of equity at end-2007. The seasoning of the bank’s loan portfolio under worsening macroeconomic conditions, coupled with a high share of foreign currency lending (61% at end-2008), are likely to noticeably increase the level of non-performing loans from the currently low level (loans overdue by 90 days and above were only 0.8% of gross loans at end-2008).

However, Fitch believes that following a USD75m capital injection from the shareholders in 2008, the bank has significant loss absorption capacity and is reasonably positioned to withstand the challenges of the deteriorating operating environment. BGB’s Tier 1 Basel ratio improved to 22.6% at end-2008 from 12.6% at end-2007, and a further capital injection of USD75m (equivalent to 75% of end-2008 capital) is planned for 2009.

At the same time, BGB’s reliance on wholesale funding and near term refinancing risks are mitigated by a high level of liquidity (cash, interbank placements and securities accounted for one third of non-equity funding at end-2008) and access to a liquidity support line from the shareholders (USD30m of which was un-drawn at end-March 2009).

The upside potential for all BGB’s ratings is currently limited given country risks and the challenging operating environment. Downside pressure on the Long-term IDR would result from a further deterioration of Belarus’ country risk and/or changes in Fitch’s view on the likelihood of support from Gazprom and group companies. The Individual Rating could come under downward pressure if asset quality deteriorates considerably, for example in the case of a further substantial devaluation of the BYR, and in particular should the planned new equity injection not materialise for any reason.

BGB is the seventh largest bank in Belarus with a 2% share of system assets at end-2008. BGB is 48% owned by Gazprom and 48% by Gazprombank. The bank focuses on lending to the Belarusian private sector, particularly SME and retail sectors.

BGB’s ratings are as follows:
Long-term foreign currency IDR: affirmed at 'B'; Outlook Stable

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

Support Rating: affirmed at '4'

Individual Rating: upgraded to ‘D/E’ from 'E'.