Scope downgrades BSTDB to A-, negative outlook amid war in Ukraine
SOFIA (Bulgaria), April 4 (SeeNews) – Scope Ratings has announced that it has downgraded the Black Sea Trade and Development Bank’s long-term and senior unsecured currency issuer rating from A- ( BSTDB) and affirmed its position as a short-term issuer rating of S-1 in foreign currency, while keeping all outlook negative as the ongoing war in Ukraine weighs heavily on the lender’s operating environment.
The downgrade was driven by the expected negative impact of continued military conflict on the quality of BSTDB’s assets, Scope said in a statement on Friday.
Russia and Ukraine together account for 32%, or 748 million euros ($822.8 million), of the bank’s outstanding loans, of which the bank has a 470 million euro exposure to the Russia and 279 million euros to Ukraine, explained Scope. In this context, increased transactional risks in Russia, due to capital controls and sanctions, as well as serious credit quality risks in Ukraine stand out as the main reasons for the bank’s rating downgrade.
In addition, the expected increase in provisioning needs in the coming years should lead to revisions to the bank’s future earnings growth and absorb a high share of the bank’s reserves, weighing on its capitalization, Scope said.
The negative outlook reflects uncertainty about the potential impact of the war on BSTDB’s balance sheet, strategy and shareholder relations.
The multilateral development bank, headquartered in Greece, counts Russia, Turkey and Greece among its largest shareholders, each with a 16.6% stake. Romania owns 14.1% of BSTDB, while Bulgaria and Ukraine each hold a 13.6% stake. Azerbaijan, Albania, Armenia, Georgia and Moldova have holdings of 5% or less. No shareholder has a blocking majority.
The bank’s loans more than doubled to 2.1 billion in the first half of 2021 from 1.0 billion in 2015, Scope noted. With capitalization levels estimated at 35%, very high compared to its peers, the lender’s equity and reserves stood at around 871 million euros in the first half of 2021.
The BSTDB, which supports economic development and regional cooperation in the Black Sea region, has recently expanded its activities and is relying on an upcoming capital increase later in 2022 to support further loan growth, with 245 million euros to be paid between 2023 and 2030.
“Scope therefore expects shareholders to contribute at least €60 million in additional capital in 2023-24, which will help offset the financial impact of the Russia-Ukraine crisis,” the agency said.
Scope added that any delay in the planned capital increase or any sign of weakening shareholder commitment to the bank from Russia, EU and/or NATO member states would be negative in terms of credit. However, financial and political support for the bank allowing it to play a role in post-conflict reconstruction would prove positive for credit.
In a comment on Monday, Scope pointed out that no BSTDB shareholder has so far indicated an intention to leave the bank and that the lender is considered to have preferred creditor status.
“The continued support and preferential treatment of all of its shareholder governments, including Russia, where around 20% of the bank’s loans are disbursed, remains critical to the bank’s credit rating,” Scope concluded.
Last week, the BSTDB announced that Standard & Poor’s Global Ratings (S&PGR) had downgraded its long and short-term credit ratings of foreign and local currency issuers on the BSTDB from A/A-2 to A/A- 1, with a negative outlook.
Early last month, Moody’s also downgraded the bank’s long-term issuer rating from A2 to Baa1.
($ = 0.9090 euros)
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