VTB Bank (Georgia) Outlook Revised To Positive Following Same Action On Sovereign; 'BB-/B' Ratings Affirmed

  • On April 12, 2019, S&P Global Ratings revised its outlook on the Government of Georgia to positive because we expect the country will be able to sustain higher-than-average growth rates in the challenging economic environment.
  • We continue to consider VTB Bank (Georgia) to be a strategically important subsidiary of VTB Bank JSC, which we expect will provide both ongoing and extraordinary support if needed.
  • We are revising the outlook on VTB Bank (Georgia) to positive and affirming the 'BB-/B' long- and short-term issuer credit ratings.
  • The positive outlook reflects that on the Government of Georgia, as well as VTB Bank (Georgia)'s strategic importance to its parent.
MOSCOW (S&P Global Ratings) April 17, 2019--S&P Global Ratings said today that it revised its outlook on VTB Bank (Georgia) to positive. We also affirmed the 'BB-/B' long- and short-term issuer credit ratings on the bank.
The revision of the outlook on VTB Bank (Georgia) mirrors our action on the Government of Georgia (see "Georgia Outlook Revised To Positive On Economic Resilience; 'BB-/B' Ratings Affirmed", published April 12, 2019).
We continue to consider VTB Bank (Georgia) to be a strategically important subsidiary of VTB Bank JSC, which we expect will provide both ongoing and extraordinary support to VTB Bank (Georgia) if needed. That said, we do not think VTB Bank (Georgia)'s creditworthiness could exceed that of the sovereign because the bank operates solely in Georgia. We also think a sovereign default could significantly constrain VTB Bank JSC's ability to provide support to its subsidiary.
Other stand-alone factors underlying our ratings on VTB Bank (Georgia) remain unchanged. With a market share of 4.0%-4.5%, VTB Bank (Georgia) remains the fourth-largest bank in Georgia. A duopoly with a joint market share of 73%-75% dominates the country's banking sector; this environment limits VTB Bank (Georgia)'s access to blue-chip clientele and complicates competition for retail business. That said, the bank managed to achieve an average return on equity of about 15% in 2014-2018, despite market turbulence and devaluation pressure. We consider VTB Bank (Georgia) adequately capitalized; we forecast its risk-adjusted capital ratio will be above 8% over the next 12-18 months. However, the dollarization of its balance sheet remains high, albeit in line with the Georgian banking system overall. This weighs on the bank's risk profile and could render it vulnerable to exchange rate swings. The bank is predominantly funded by customer deposits and by VTB Bank JSC. Although sanctions on the VTB group have constrained VTB Bank (Georgia)'s access to long-term dollar borrowings from abroad, group support in the form of available liquidity facilities allows VTB Bank (Georgia) to manage potential outflows.
The positive outlook on VTB Bank (Georgia) reflects our expectation that we would likely upgrade the bank over the next 12-18 months if we saw an improvement in the Government of Georgia's creditworthiness.
An upgrade of VTB Bank (Georgia) would require an upgrade of the sovereign, and VTB Bank JSC would also need to continue demonstrating willingness and ability to provide extraordinary support to VTB Bank (Georgia), if needed. An upgrade would also require VTB Bank (Georgia) to maintain its intrinsic credit quality at least at current levels.
We could revise the outlook to stable if we saw VTB Bank (Georgia)'s credit quality deteriorating, or if we revised the outlook on the sovereign to stable. A downgrade could follow if we saw VTB Bank JSC's strategic focus shifting away from VTB Bank (Georgia), or if we saw a significant impairment in its ability to provide support to VTB Bank (Georgia).
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