Fitch: Ukraine's banking system more resilient to negative shocks than in 2008
2012-10-24 11:45:38
The Ukrainian banking system is somewhat more resilient to negative shocks than in the crisis period of 2008, according to a special report by Fitch Ratings entitled "Ukrainian Banking Sector: More Resilient Now?"
"The Ukrainian banking sector is highly exposed to a marked devaluation of the hryvnia, or to a continued slowdown of the economy. However, the system is somewhat more resilient to negative shocks than in 2008 as a result of some positive developments since the onset of the global economic crisis," reads the report.
In Fitch's view, the system is somewhat more resilient to negative macroeconomic trends than in 2008 due to the sector recapitalization which has taken place over the past four years, banks' more seasoned loan books and greater experience of crisis/problem loan management, the somewhat lower proportion of FX lending and significantly less third party external debt.
Problem assets remain significant but relatively stable, although near-term trends will be dependent on the performance of the economy and the hryvnia.
Fitch's base case forecasts are for a moderate 10% depreciation of the hryvnia against the U.S. dollar by end-2012, and for a pick-up in GDP growth to 3.2% in 2013 from 0.5% in 2012 (5.2% in 2011).
However, a larger change in the exchange rate remains a significant risk, and this would likely erode banks' capital, further weaken asset quality, and increase deposit instability.
"Continued weak economic performance would also gradually undermine banks' asset quality and performance," Fitch said.
According to the report, Ukrainian banks' Long-term Issuer Default Ratings (IDRs) remain constrained in the 'B' category as a result of high country risks and still weak asset quality and performance.
Upgrades of foreign-owned and state-owned banks would require an upgrade of the sovereign ('B'/Stable), which is unlikely in the near term.
At the same time, a sovereign downgrade could result in downgrades of banks' Long-term IDRs, while a marked depreciation of the hryvnia, significant deposit outflow or renewed deterioration of asset quality could lead to a lowering of banks' Viability Ratings.