Fitch Ratings has assigned Belarusian Belvnesheconombank a Long-term Issuer Default Rating (IDR) of 'B', Short-term IDR 'B', an Individual rating of 'D/E', a Support rating of '4', and Support Rating Floor of 'No Floor'. The Outlook for the Long-term IDR is Negative.

Belvnesheconombank’s IDRs and Support Rating are underpinned by potential support, in case of need, from its majority shareholder, Russia’s Vnesheconombank (‘BBB’/Negative Outlook). Fitch believes that Vnesheconombank would provide necessary support should Belvnesheconombank require it. However, Belarusian transfer and convertibility risks may constrain the extent to which the Belarusian bank would be able to utilise this support.

According to the experts of the agency, the Individual rating reflects the bank’s relatively small size, significant borrower and depositor concentrations, a high share of foreign currency loans, its deteriorating asset quality and the risks associated with aggressive growth plans in a challenging operating environment. The Individual rating also takes into consideration the bank’s special role in financing Belarus’ international trade, comfortable liquidity profile and reasonable capital ratios. Its capitalisation is supported by improving profitability and should benefit from further recapitalisation plans that are likely to significantly strengthen the bank’s loss absorption capacity.

The Negative Outlook reflects the growing risk that Belarus’ deteriorating economic environment and external finances could weaken the sovereign’s credit profile and lead to an increase in transfer and convertibility risks. The Individual rating could come under downward pressure should asset quality deteriorate faster than expected, particularly if recapitalisation plans are not implemented. Any significant threat to Belarus’ economic stability could also put pressure on Belvnesheconombank Individual rating by impacting its asset quality, the stability of its funding base and its liquidity profile.

The bank’s loan portfolio grew 43% in 2008 and 17% in H1 2009, although the H1 2009 growth was almost fully attributable to the depreciation of the Belarusian ruble. Despite the deteriorating environment, the bank budgets a 53% loan growth for 2009 (even though it missed the 31% growth target for H1 2009). Reported asset quality is good but is rapidly deteriorating - loans overdue for over 90 days amounted to 1.1% of gross loans at the end of H1 2009 (0.6% in late 2008) and a further 2.1% of the loan book was rolled over on the same date (0.3% in late 2008). The aggressive growth targets, high share of foreign currency lending (65% of the loan book at the end of H1 2009) and significant borrower concentration (the 20 largest borrowers accounted for 49% of corporate loans at the end of H1 2009) expose the bank to additional credit risks.

The 20 largest depositors accounted for a significant 33% of total deposits at the end-H1 2009 although concentration risk is somewhat mitigated by the bank’s comfortable liquidity position with liquid assets (defined as cash and equivalents, interbank placements and securities) amounting to 51% of customer funding at the end of H1 2009.

Belvnesheconombank’s regulatory tier 1 and total capital ratios stood at a reasonable 19.3% and 30.1%, respectively at the end of H1 2009 while significant improvement in profitability (H1 2009 statutory net profit was 155% of 2008 profit) supports internal capital generation. Fitch estimates that at the end of H1 2009 Belvnesheconombank could have raised its loan impairment reserves to approximately 26% of its gross loans from the current level of 2% before its capital adequacy would have fallen to the regulatory minimum level. A further increase of share capital by up to an equivalent of $150 million (about 92% of the equity at the end of H1 2009) is planned for H2 2009. The Russia’s Vnesheconombank will also provide the Belarusian bank with long-term RUB-denominated subordinated debt equivalent to $50 million.

Belvnesheconombank is 97.24%-owned by Russia’s Vnesheconombank and is a universal bank with a strong regional presence in Belarus and 2.5% share of the system’s assets at the end of H1 2009. Belvnesheconombank plays a special policy role in financing Russian imports and acts as an agent of the Belarusian government in attracting foreign investment into strategic infrastructure projects.

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