OREANDA-NEWS. Fitch Ratings has downgraded the Long-term local currency Issuer Default Ratings (IDRs) of Ukraine's JSC The State Export-Import Bank of Ukraine (Ukreximbank) and JSC State Savings Bank of Ukraine (Oschadbank) to 'CCC' from 'B-' and placed PJSC CB PrivatBank's (Privat) Long-term local currency IDR of 'B-' on Rating Watch Negative (RWN).

At the same time, Fitch has affirmed the 'B-' Long-term local currency IDRs of Joint Stock Commercial Industrial & Investment Bank (PJSC Prominvestbank, PIB), Public Joint Stock Company UkrSibbank, Ukrsotsbank (Ukrsots), PJSC VTB Bank (VTBU), ProCredit Bank (Ukraine) (PCBU), PJSCCB Pravex-Bank (Pravex), PJSC Credit Agricole Bank (CAB) and PJSC Alfa-Bank (ABU).

The Long-term foreign currency IDRs of all 11 banks have been affirmed at 'CCC'. A full list of rating actions is provided at the end of this rating action commentary.

KEY RATING DRIVERS
The rating actions follow Fitch's downgrade of Ukraine's Long-term local currency IDR to 'CCC' from 'B-' and the affirmation of the sovereign's Long-term foreign currency IDR at 'CCC'. The Country Ceiling was also affirmed at 'CCC'.

The downgrades of the Long-term local currency IDRs of state-owned Ukreximbank and Oschadbank and the affirmation of their Long-term foreign currency IDRs - all at 'CCC' - reflect the reduced ability of the Ukrainian authorities to provide support in local as well as foreign currency, in case of need, as indicated by the sovereign's 'CCC' Long-term IDRs. However, Fitch still believes the authorities' propensity to provide support to Oschadbank and Ukreximbank would be quite high, based on their 100%-state ownership, policy roles, high systemic importance, and the track record of capital support for the banks under different governments.

Privat's ratings are driven by its standalone credit strength as reflected in its Viability Rating (VR) of 'b-'. According to Fitch's criteria the sovereign rating often acts as an effective cap on the maximum level of the bank's ratings in a jurisdiction. For the bank's VR to be rated above the sovereign Fitch would expect it to demonstrate strong resilience to deteriorating trends in the operating environment in terms of asset quality, liquidity, performance and capitalisation, while also having limited direct correlation with the sovereign profile. Following the sovereign rating action, Fitch has therefore placed Privat's VR of 'b-', 'B-' Long-term local currency IDR and National Long-term Rating on RWN and intends to reassess the impact of the sovereign action on Privat's ratings and resolve the RWN by the end of this year.

The 'CCC' Long-term foreign-currency IDRs and, where assigned, foreign currency senior debt ratings, of Privat and the eight foreign-owned banks - PIB, UkrSibbank, Ukrsots, VTBU, PCBU, Pravex, CAB and ABU - reflects the constraint of Ukraine's Country Ceiling (CCC). Ukraine's Country Ceiling reflects the heightened risk of capital and/or exchange controls being tightened, to the extent that these would materially constrain or impede the private sector's ability to repay foreign-currency obligations. Limited capital controls introduced in February 2014 do not prevent external debt service.

The one-notch uplift of the Long-term local currency IDRs above the sovereign rating in the eight foreign-owned banks - Prominvestbank, UkrSibbank, Ukrsots, VTBU, PCBU, Pravex, CAB and ABU - reflects the strength of the shareholder support to these entities. The Negative Outlooks reflect country risks, and in particular the risk, in extreme scenarios, of restrictions being placed on banks' ability to service their local currency obligations.

The IDRs, Support Ratings and senior debt ratings of the eight foreign-owned banks factor in the likelihood of support the banks may receive from their majority shareholders. However, the Country Ceiling limits the extent to which support from the majority foreign shareholders of these banks can be factored into most of these ratings. PIB is 98.6%-owned by Russian state-owned Vnesheconombank (VEB, BBB/Negative); UkrSibbank is 85%-owned by BNP Paribas (A+/Stable); VTBU is more than 99%-owned by Russia's JSC Bank VTB; PCBU is controlled (60% of voting stock) by ProCredit Holding AG & Co. KGaA. (BBB/Stable); and CAB is fully owned by Credit Agricole S.A. (A/Stable).

Ukrsots is 99.41%-owned by UniCredit S.p.A. (UniCredit, BBB+/Negative) through its Vienna subsidiary UniCredit Bank Austria AG (A/Negative), although its potential sale has recently been announced. UniCredit targets Ukrsots' sale as soon as the opportunity arises, although it may take time given the currently difficult operating environment in Ukraine. Fitch believes that UniCredit will likely have a high propensity to provide support to Ukrsots prior to any sale.

Pravex is currently fully owned by Intesa Sanpaolo S.p.A. (Intesa, BBB+/Stable), although its sale to CentraGas Holding, a company controlled by Ukrainian shareholders, was announced in early 2014 and is now awaiting the necessary regulatory approvals. Fitch believes that Intesa will provide any necessary support up until the completion of the bank's sale.

The RWN on Ukrsots' and Pravex's local currency IDRs reflects Fitch's view that shareholder support will probably become less reliable if the banks are sold, in particular, to local shareholders.

ABU's IDRs and senior debt ratings are driven by Fitch's view on potential support the bank may receive from other assets controlled by its main shareholders, including from its sister bank, Russia-based OJSC Alfa-Bank (AB; BBB-/Negative). However, the probability of support is limited due to the indirect relationship with other group assets and the mixed track record of support.

For similar reasons to those for placing Privat's VR and local currency IDR on RWN, Fitch has also placed the 'b-' VRs of PCBU and CAB on RWN with a view to reassessing the impact of the sovereign rating action and deteriorating trends in the operating environment on the banks' stand-alone profiles. Fitch intend to resolve RWNs by the end of this year.

The VRs of other banks are not affected by these ratings actions.

With the exception of Privat's National Rating, which was placed on RWN to mirror the action on its local currency IDR, the banks' National Ratings are unaffected by today's ratings actions. Fitch will review these ratings in the near term and publish a relevant rating action commentary.

Fitch has downgraded Privat's senior unsecured debt's Long-term rating and the Recovery Rating to 'CC' from 'CCC' and to 'RR5' from 'RR4', respectively. This reflects a marked increase in subordination for senior unsecured creditors, including bondholders, due to the sharp growth in the level of asset encumbrance in 1H14 following the bank's increased reliance on collateralised central bank borrowing. This, coupled with its high share of retail deposits (57% of Privat's non-equity funding at end-1H14, local GAAP) that rank senior to other creditors under Ukrainian law, leaves senior unsecured debt holders very deeply subordinated. This level of subordination could limit recoveries for senior unsecured creditors in a default scenario. At the same time, in Fitch's view, it would be highly unlikely, in case of default, for Privat to be forced into outright bankruptcy procedures and a fire sale of assets, due to its sizable market shares and systemic importance, which could to some extent reduce downside recovery risks for bondholders.

RATING SENSITIVITIES
The IDRs, debt ratings and VRs of all 11 banks, and the Support Rating Floors of Ukreximbank and Oschadbank are highly correlated with the sovereign credit profile. The ratings could be downgraded further in case of a further downgrade of the sovereign, or stabilise at their current levels if downward pressure on the sovereign ratings abates. The banks' IDRs and debt ratings could also be downgraded in case of restrictions being imposed on their ability to service their obligations.

Fitch expects to resolve the RWN on Ukrsots' and Pravex's local currency IDRs once the sales, should they take place, are completed. If, in Fitch's view, support from new shareholders cannot be factored into the ratings, then the Long-term local currency IDRs of these two banks are likely to be downgraded to the level of their VRs (currently 'ccc').

The RWNs on the VRs of Privat, PCBU and CAB and Privat's local currency Long-term IDR are likely to be downgraded unless our review of the respective banks' exposure to the decline in the economic environment and direct exposure to the sovereign provides sufficient justification for these ratings to remain above the sovereign's.

The rating actions are as follows:

Ukreximbank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: downgraded to 'CCC' from 'B-'
Senior unsecured debt of Biz Finance PLC: affirmed at 'CCC'/'RR4'
Subordinated debt: 'C'/'RR5' not affected
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'CCC'
Viability Rating: 'ccc' not affected
National Long-term rating: 'AA-(ukr)'; Outlook Stable, not affected

Oschadbank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: downgraded to 'CCC' from 'B-'
Senior unsecured debt of SSB No.1 PLC: affirmed at 'CCC'/'RR4'
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'CCC'
Viability Rating: 'ccc' not affected
National Long-term rating: 'AA-(ukr)'; Outlook Stable, not affected

PJSC CB PrivatBank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: 'B-', placed on RWN
Senior unsecured debt of UK SPV Credit Finance plc: downgraded to 'CC'/'RR5' from 'CCC'/'RR4'
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Viability Rating: 'b-', placed on RWN
National Long-term rating: 'A-(ukr)'; placed on RWN

PJSC UkrSibbank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Senior unsecured local currency debt: affirmed at 'B-'/'RR4'; 'AAA(ukr)' not affected
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'cc', not affected
National Long-term rating: 'AAA(ukr)'; Outlook Stable, not affected

Ukrsotsbank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: 'B-', maintained on RWN
Senior unsecured local currency debt: 'B-'/ 'RR4' ', maintained on RWN; 'AAA(ukr)'/RWN not affected
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'ccc' not affected
National Long-term rating: 'AAA(ukr)'/RWN not affected

PJSC VTB Bank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Senior unsecured local currency debt: affirmed at 'B-'/ 'RR4'; 'AAA(ukr)' not affected
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'ccc' not affected
National Long-term rating: 'AAA(ukr)'; Outlook Stable, not affected

ProCredit Bank (Ukraine):
Long-Term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Senior unsecured local currency debt: affirmed at 'B-'/ 'RR4'; 'AAA(ukr)' not affected
Short-term foreign currency IDR: affirmed at 'C'
Short-term local currency IDR: affirmed at 'B'
Support Rating: affirmed at '5'
Viability Rating: 'b-', placed on RWN
National Long-Term rating: 'AAA(ukr)';Outlook Stable, not affected

Pravex:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: 'B-', maintained on RWN
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'ccc' not affected
National Long-term rating: 'AAA(ukr)'/RWN not affected

CAB:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Short-term foreign currency IDR: affirmed at 'C'
Short-term local currency IDR: affirmed at 'B'
Support Rating: affirmed at '5'
Viability Rating: 'b-', placed on RWN
National Long-term Rating: 'AAA(ukr)';Outlook Stable, not affected

PJSC Alfa-Bank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Senior unsecured local currency debt: affirmed at 'B-'/'RR4'; 'BBB-(ukr)' not affected
Upcoming senior unsecured local currency debt: affirmed at 'B-(EXP)'/'RR4'; 'BBB-(EXP)(ukr)' not affected
Senior unsecured debt of Alfa Ukrfinance LLC: affirmed at 'CCC'/'RR4'
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'ccc' not affected
National Long-term rating: 'BBB-(ukr)'; Outlook Stable, not affected

PJSC Prominvestbank:
Long-term foreign currency IDR: affirmed at 'CCC'
Long-term local currency IDR: affirmed at 'B-', Outlook Negative
Senior unsecured local currency debt rating: affirmed at 'B-'/ 'RR4'; 'AAA(ukr)' not affected
Short-term foreign currency IDR: affirmed at 'C'
Support Rating: affirmed at '5'
Viability Rating: 'ccc' not affected
National Long-term Rating: 'AAA(ukr)'; Outlook Stable, not affected.