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14.10.2008
Credit-Rating: It`s required the consistency of actions between the regulator and central government authorities for stabilization of the Ukrainian banking system
The adoption of the NBU`s resolution #319 dated October 11, 2008, which imposes restrictions on banks` active operations and early withdrawal of deposits, is one of the necessary steps required for stabilization of Ukraine`s banking system. At the same time Credit-Rating believes that further coordinated actions taken by the President, the Government and the National Bank which are aimed at development and implementation of the counter-crisis strategy are required.
In Credit-Rating`s view the peculiarity of the present situation is that the financial crisis affects all banking institutions in the country, including large systemic banks. The development strategies of such banks have been built upon active utilization of borrowed funds raised from abroad and upon possibility of further re-financing of such loans.
The Ukrainian banks are to repay about USD1bn of syndicated loans (raised in 2H2007) and Eurobonds by 2008-end. Among the heaviest burdened are Ukrsotsbank (USD250m), Raiffeisen Bank Aval (USD200m), Nadra (USD130m, and USD100m of eurobonds). Other 9 banks have raised loans in the amounts of up to USD100m.
The global liquidity crisis has led to minimal possibilities for replacement of such loans. At the same time foreign capital started to flow out of Ukraine, which resulted in shortage of funds denominated in foreign currencies. Under such circumstances the banks have to cut their active operations in order to accumulate funds. This prompted decrease in long-term lending, rise of interest rates and decrease in limits for inter-bank lending. The banking system becomes vulnerable to aggravated market environment (primarily in construction and real estate sectors). That causes emerge of problems associated with the quality of banks` assets, for, by this moment, high growth rates of active operations underpinned the share of bad loans at moderate level.
Credit-Rating notes that the present unfavorable situation in the financial market may continue to aggravate. The preconditions for that may be the following: decline in the country`s economic growth rates, retention of crisis in a number of fundamental economy branches, further aggravation in asset quality of banks and modest level of risk management, and need for repayment of significant amounts of liabilities on syndicated loans and Eurobonds, which is to occur in 2009 (USD2.4bn).
Another risk factor is political instability and absence of constantly functioning legislature. The early elections and instability in the foreign currency market may erode people`s trust in the banking system and spur funds withdrawal, which, under such global market turbulence, may result in financial shocks.
In order to enhance liquidity of the banking system under uncertainty in global financial market the National Bank of Ukraine starting from October 27, 2008 annuls limits imposed on rates for raise of external borrowings of up to 1 year maturity by banks-residents, having set the rate at LIBOR+11 p.a., and the limits for long-term borrowings will be annulled in full. The cancel of these limits will not trigger in-flow of foreign capital, yet will enable certain banks, mainly banks with foreign capital, to refinance earlier raised loans at market price, and the Ukrainian banks will have to seek help from the NBU. Thereat the National Bank of Ukraine during October 1-8, 2008 provided Ukrainian banks with the refinancing in the amount of almost UAH6.5bn, and commenced more active interventions in the currency market.
Credit-Rating has not yet downgraded any ratings assigned to banking institutions in connection with the crisis. Further changes in ratings assigned to banks will be greatly contingent upon both efforts of the National Bank and accordance in measures taken by the state authorities.
For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua
