OREANDA-NEWS. On 21 February 2008 was announced, that Moody's Investors Service upgraded the bank financial strength rating ("BFSR") of Raiffeisen Bank Aval to D from D-. The outlook on the BFSR is stable following the upgrade. At the same time, Moody's affirmed all of the bank's other ratings with their existing outlooks (see list below).
 
According to Moody's, rating action reflects the significant and ongoing improvements in Raiffeisen Bank Aval's risk management processes to levels commensurate with those of its ultimate parent Raiffeisen Zentralbank Oesterreich AG and in line with its very robust franchise, which has been improved on the back of diversification into retail and as a result strengthen name recognition, and strong financial fundamentals to an extent commensurate with D rated banks.
 
"The entrance of its strategic foreign shareholder in late 2005 turned Raiffeisen Bank Aval around, with a positive impact on its lending culture, decision-making processes and business philosophy, resulting in a more conservative and market-oriented institution with credit underwriting standards in line with those of its parent. The bank's committed shareholder also provides it with regular capital injections to enable it to catch up with the market growth at relatively low cost as well as stable funding. In addition, the change in ownership contributed positively to Raiffeisen Bank Aval's corporate governance with a management comprising a blend of foreign and local professionals," explains roman piven, assistant vice president-analyst and lead analyst for Raiffeisen Bank Aval at Moody's.
 
The upgrade also takes into account Moody's opinion that Raiffeisen Bank Aval is well positioned to further consolidate its market positions thanks to its considerably enhanced customer reach through the reorganised network of 1,262 branches and outlets across the country at H3 2007 against the backdrop of Ukraine's increasingly competitive environment. At present, Raiffeisen Bank Aval, the largest foreign bank subsidiary in Ukraine, ranks second among Ukrainian banks in terms of total assets, loans to retail customers and deposits (with market shares of between 7% and 13% on these measures) and also maintains a solid position in the corporate segment. Moody's believes that the bank is particularly well positioned to grow in retail (where it is particularly strong in the car finance and mortgage segments) and in the SME franchise.
 
Moody's adds that Raiffeisen Bank Aval's ratings remain constrained by: (i) the difficult operating environment, (ii) the very rapid pace of growth, which is associated with higher risks, and mounting competitive pressure, which may lead to a potential loosening in credit underwriting, (iii) concentrations in its loan portfolio and the untested quality of the new business lines launched in retail and SME, (iv) its relatively high reliance on its parent in funding as well as increasing dependence on market sources for funding leading to tightening liquidity, and (v) a low internal capacity to generate capital, which results in a need for external capital calls to catch up with the balance sheet growth.
 
At the same time, the ratings are supported by (i) the bank's well-conceived market strategy implemented by its experienced management team, (ii) a track record of profitable, cost-efficient operations, which are likely to be preserved going forward, (iii) sound asset quality and stringent loan underwriting standards, and (iv) a satisfactory liquidity profile in a period of global market turbulence.
 
Moody's notes that the bank's Baa1/Prime-2 long- and short-term local currency deposit ratings incorporate a four-notch uplift from its baseline credit assessment of Ba2 (which represents its standalone credit quality and which is mapped from the D BFSR) based on Moody's assessment of a very high probability of parental support from Raiffeisen Zentralbank Oesterreich AG and a very high probability of systemic support.
 
The following rating was upgraded:

- Bank financial strength rating to D from D- (stable outlook)


The following ratings were affirmed:

- Global local currency deposit ratings of Baa1 (stable outlook)/Prime-2

- Foreign currency deposit ratings of B2 (positive outlook) / Not Prime

- Baa1 (stable)/Prime-2 long-term senior unsecured debt ratings

- Aaa.ua national scale rating (no specific outlook)

- Aaa.ua national scale long-term senior unsecured debt rating (no specific outlook)