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Research Update: Belarusbank Foreign-Currency Ratings Affirmed At 'CC/C' And Removed From CreditWatch Negative; Outlook Negative

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Research Update: Belarusbank Foreign-Currency Ratings Affirmed At 'CC/C' And Removed From CreditWatch Negative; Outlook Negative

Overview

  • On Aug. 3, 2022, S&P Global Ratings lowered its long-term foreign currency rating on Belarus to 'SD' (selective default), following the government's inability to fulfill one of its coupon payments.
  • We expect Belarusbank will continue to service all its financial obligations, including its foreign-currency-denominated debt to residents.
  • Therefore, we removed from CreditWatch negative our foreign currency long-term rating on the bank and affirmed it at 'CC', in line with the transfer and convertibility (T&C) assessment on Belarus. At the same time, we removed from CreditWatch negative our foreign currency short-term rating on the bank and affirmed it at 'C'.
  • We also affirmed our local currency ratings at 'CCC/C', since we consider Belarusian-ruble (BYN)-denominated bank debt to be less vulnerable to nonpayment.
  • The negative outlook indicates that macroeconomic and fiscal stress may weaken Belarusbank's ability to stay current on its obligations.

Rating Action

On Aug. 5, 2022, S&P Global Ratings removed its foreign currency long-term and short-term issuer credit ratings on Belarusbank from CreditWatch with negative implications, where it was placed on March 1, 2022. At the same time, we affirmed our 'CC/C' foreign currency and 'CCC/C' local currency long- and short-term ratings on the bank. The outlook on both the local currency and foreign currency long-term ratings is negative.

Rationale

Despite our downgrade of Belarus to 'SD' and risks of further tightening of capital controls, Belarusbank remains current on its foreign-currency (FX)- and local-currency-denominated financial obligations.  We lowered the foreign currency rating on Belarus to 'SD' because the Belarusian government did not make the coupon payment of some $23 million on its U.S.-dollar-denominated 2027 Eurobond in dollars by the end of the contractual grace period. We consider that if sanctions and capital controls tighten, Belarusbank may face difficulties in servicing its current obligations, similar to those faced by the government of Belarus. Generally, we don't rate banks above the sovereign rating because of the likely direct and indirect influence of sovereign distress on their operations, including their ability to service foreign currency obligations.

We understand the bank has not experienced any difficulties in servicing its financial obligations. Belarusbank has several FX-denominated domestic issues outstanding totaling about $780 million. Its bondholders are all Belarusian residents. Moreover, the bank is not exposed to sovereign FX-denominated debt. It also has 15 local-currency-denominated bonds outstanding totaling BYN2 billion (about $790 million), most of which mature in 2030.

In April 2022, the bank's sole shareholder Belarus injected BYN1.8 billion ($700 million) of capital, which is about one-third of its total capital.  We note that Belarusbank's deposit base has been relatively stable since the beginning of 2022. The bank maintains funding and liquidity ratios well above minimum requirements, with liquidity coverage ratio indicators above 180% and net stable funding ratio indicators above 110% as of July 1, 2022. Belarusbank's liquid assets--including unrestricted cash, interbank placements, and the securities portfolio--accounted for about BYN4.3 billion, or 23% of total assets at the same date.

Outlook

The negative outlook indicates that macroeconomic and fiscal stress may weaken Belarusbank's ability to stay current on its obligations.

Downside scenario

We would lower the ratings on Belarusbank if we see indications that the bank's obligations could suffer nonpayment or restructuring, or if we observe significant deposit outflows.

Upside scenario

Any positive rating action on Belarusbank would require a positive rating action on the sovereign, including an improvement of our T&C assessment.

ESG credit indicators: E-2, S-1, G-4

Related Criteria

Related Research

Ratings List

Ratings Affirmed

Belarusbank

Issuer Credit Rating
Local Currency CCC/Negative/C
Ratings Affirmed; CreditWatch/Outlook Action
To From

Belarusbank

Issuer Credit Rating
Foreign Currency CC/Negative/C CC/Watch Neg/C

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