Fitch Downgrades 3 Georgian Banks' Support Ratings

Fitch Downgrades 3 Georgian Banks' Support Ratings

access_time2021-01-25 15:36:53


Fitch Ratings has downgraded three systemically important Georgian banks' Support Ratings to '5' from '4' and revised the banks' Support Rating Floors (SRFs) to 'No Floor' from 'B'. The ratings have been removed from Rating Watch Negative (RWN). The affected banks are JSC TBC Bank (TBC), JSC Bank of Georgia (BOG) and JSC Liberty Bank (LB). The rating actions follow the recent introduction of bank resolution legislation.

The rating actions reflect the recent adoption of legislation on Georgia's bank resolution framework, which in Fitch's view provides a credible mechanism for the bail-in of senior creditors in the event of bank failures. We believe that this legislation, combined with constraints on the ability of the authorities to provide support, mean that government bail-outs, although still possible, can no longer be relied upon.

Georgia's bail-in regime is to a large degree in line with frameworks introduced in many developed markets by providing the authorities with a clear mechanism to impose the cost of a failed bank onto creditors rather than taxpayers without initiating bankruptcy proceedings.

The regime does not provide for mandatory senior creditor bail-in in case of failure, but instead states that decisions on bail-in and/or support will be at the sole discretion of the authorities, based on such considerations as broader financial market stability and the ability of the bank to continue its key operations. This suggests that support for senior creditors is still possible, but the adoption of the resolution framework, combined with constraints on support ability, mean that support can no longer be relied upon, in our view.


We believe that the ability of the authorities to provide support is limited primarily because of the high dollarisation of the banking system, with 62% of total liabilities being denominated in foreign currencies (FC) at end-11M20. The banking system's FC liabilities of USD9.4 billion exceed the National Bank's foreign-exchange reserves of USD3.9 billion. As a result, Fitch sees a significant risk of banks' need for government support coinciding with heightened constraints on the ability of the authorities to provide it due to stress in the country's external finances.

Under Fitch's bank rating framework, IDRs are assigned at the higher of our intrinsic financial assessment, as reflected in Viability Ratings (VRs), and our assessment of external support, as reflected in SRFs for government support. As the VRs of the three Georgian banks of 'bb-' (TBC and BOG) and 'b+' (LB) were already above their SRFs, the downward revision of the latter has no impact on the three banks' IDRs, or on the 'BB-' senior debt ratings of BOG and TBC.

The Georgian resolution framework provides for mandatory bail-in of junior liabilities (including tier 2 debt and tier 1 securities) prior to any government support being provided to a failed bank. The ratings of TBC's and BOG's AT1 securities at 'B-' are notched down three times from the banks' respective VRs and do not factor in any potential government support. Accordingly, these ratings are also unaffected by today's actions.



RATING ACTIONS

ENTITY/DEBT

RATING


PRIOR

JSC Liberty Bank

Support

Downgrade



Support Floor

NF 

Support Rating Floor Revision


TBC BANK JSC

Support

Downgrade



Support Floor

NF 

Support Rating Floor Revision


Bank of Georgia

Support

Downgrade



Support Floor

NF 

Support Rating Floor Revision



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