Fitch ratings affirms VTB Bank Armenia at 'BB+' and ACBA-Credit Agricole Bank at 'BB'

PanARMENIAN.Net - Fitch ratings has on April 30 affirmed two Armenian banks, VTB Bank Armenia (VTBA) and ACBA-Credit Agricole Bank (ACBA), at Long-term Issuer Default (IDR) 'BB+' and 'BB', respectively.



The outlooks on both banks are Stable. The Individual Ratings of VTB A and ACBA have been also affirmed at 'D/E' and 'D', respectively. A full list of rating actions is provided at the end of this commentary.



The IDRs of both banks reflect Fitch's view of the moderate probability of support being forthcoming, if required, from their owners. Fitch believes Russia's JSC VTB Bank (VTB; 'BBB'/Negative) would have a strong propensity to support VTB A, in case of need, due to its 100% ownership, the strategic importance of CIS markets for VTB and the small size of VTB A relative to its parent.

 

In respect to ACBA, the probability of support being forthcoming from Credit Agricole (CA; 'AA-' (AA minus)/Stable) is undermined by CA's minority stake (28%) and the fact that the Armenian market does not appear to be of high importance for CA; these considerations are reflected in the lower Long-term IDR of ACBA, relative to VTB A. Nevertheless, support is factored into the ratings of ACBA due to brand association, the close involvement of CA in establishing and supervising ACBA and ACBA's relatively small size.

 

The Individual Ratings of both banks reflect rapid loan growth in recent years, the high proportion of foreign currency loans and the high-risk operating environment, but also take into account the solid capitalisation of both banks and their broad domestic franchises. However, the high concentration of VTB A's loan book, its relatively high exposure to the vulnerable construction sector, the somewhat higher current loan impairment level, larger tier 2 component in capital and much higher reliance on shareholder funding/liquidity support make the bank weaker on a standalone basis, which is reflected in its Individual Rating of 'D/E'. The Individual Rating of ACBA at 'D' considers the high granularity of its loan portfolio, diversified funding base and stable liquidity position, high profitability and good corporate governance.

 

ACBA is Armenia's largest bank by assets and loans, with market shares of 12% and 13%, respectively, at end-2008. It has a leading position in agricultural lending with a 71% market share. The biggest stake in the bank is owned by CA and the remainder is distributed among 10 regional agricultural unions.

 

VTBA held 11% of sector loans and 5.9% of retail deposits at end-2008. The bank has an extensive branch network covering all regions of Armenia and is 100%-owned by VTB, finchannel.com reported.