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Georgian banks in wait for actions by government2009-04-10 16:07
Fitch Ratings international agency placed Long-term Issuer Default Ratings (IDRs) of 4 Georgian banks on Rating Watch Negative (RWN) following yesterday's transition of Georgia's sovereign Long-term foreign and local currency IDRs on RWN too. The state that until recently evaded the problem of non-performing loans started discussing possible cooperation with banks in the run-up to the protest rallies.
The following banks were downgraded by Fitch: ProCreditBank, VTB Bank JSC, Bank of Georgia and TBC Bank.
The new status of ProCreditBank and VTB Bank according to Fitch Ratings press release reflects the potential for Georgian transfer and convertibility risks to increase. These risks are logical consequence of Georgian sovereign rating lowering to B+. As for the Bank of Georgia and TBC Bank they were marked down by the analysts who doubt abilities of Georgian authorities to provide support to them.
Fitch remarked that lasting political instability increases the risks for capital inflow. Apart from downgrade in sovereign ratings the unrest in Georgia may bring about negative after-effects for the banks.
After Fitch lowered the country's sovereign rating Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team stated that Georgia should apply its best efforts to preserve stability in the country. According to him in spite of international financial aid "the ongoing global financial crisis has heightened downside risks to Georgia's creditworthiness". There is a current account deficit, no private sector capital inflows and reduction in money transfers from abroad.
"Against this background, Georgia needs to maintain the confidence of international investors and donors and can ill afford an increase in political unrest - a risk that has intensified with the opposition planning mass demonstrations starting on 9 April aimed at forcing President Mikheil Saakashvili from office", - the economist warned. Fitch promised to raise the ratings in case of quick wind-up of demonstrations. Otherwise further lowering of ratings is likely.
The problems of the banking sector (with 20 banks operating in the country) came up after 2008 reviews. The losses of the financial organizations amounted to 216 mln lari. And this is after 2007 boom with 109 mln lari of profit. The start of 2009 was dispiriting too. By March the losses have gone up to almost 18 mln lari.