Fitch Affirms Four Georgian Banks

Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) of Bank of Georgia (BoG), TBC Bank (TBC), ProCredit Bank (Georgia) (PCBG) and JSC Liberty Bank (LB). The Outlooks on the banks' Long-term IDRs are Stable.

The affirmation of BoG's, TBC's, PCBG's and LB's VRs, and (with the exception of PCBG) their Long-term IDRs, reflects the still reasonable prospects for the Georgian economy, notwithstanding the recent slowdown in growth, and the banks' generally sound financial metrics, management and governance.

The banks' asset quality ratios remain reasonable, with non-performing loan ratios (NPLs, loans overdue by 90 days) ranging from 1% to 4% of gross loans and restructured loans also moderate. Fitch views the banks' near-term prospects as reasonable, given the agency's forecast of 4.3% GDP growth for the Georgian economy in 2013 and low impairment charges at this point in the economic cycle. In light of the latter, banks' internal capital generation capacity should remain reasonable, supported by fairly wide margins. Capital levels are high, as reflected in Fitch core capital (FCC) ratios ranging between about 15% and 27% at end-2012. Liquidity is good, providing a solid buffer to absorb any unexpected funding outflows, and refinancing risk is limited in view of the international financial institutions that are the main providers of long-term funding.

At the same time, the agency notes that the banks' current levels of capitalisation are warranted given the fairly high-risk operating environment in Georgia and the potentially cyclical performance of both the economy and the banks. Although Fitch's base case expectation is for still solid growth in the near to medium term, political uncertainty and downside risks to economic performance have increased following the change of government in 2012.

As an additional source of risk, Fitch also notes the banks' expansion in segments (notably in retail, micro and SMEs) where some of them have a shorter track record of lending, and which are gradually becoming more leveraged. BoG and TBC also have significant exposures to more risky long-term project finance loans. The agency also believes that growing competition could lead to a gradual weakening of underwriting at a time when margins are tightening, although softening of both lending standards and credit spreads has been limited to date.

BoG's and TBC's 'bb-' VRs are further supported by their well-established franchises and dominant market shares. At end-2012, the two banks accounted for over 60% of the sector's assets.

The equalisation of PCBG's VR with those of BoG and TBC, notwithstanding PCBG's significantly smaller size, reflects the bank's superior track record of asset quality and performance through the cycle and its good corporate governance and risk management, reflecting its participation in the ProCredit group of banks.

LB's VR of 'b' reflects its more limited track record and franchise, faster growth and more moderate profitability and capitalisation relative to peers.

The rating actions are as follows:



Bank of Georgia
Long-term foreign and local currency IDRs: affirmed at 'BB-'; Outlook Stable
Short-term foreign and local currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'bb-'
Support Rating: affirmed at 4
Support Rating Floor: affirmed at 'B'
Senior unsecured debt: affirmed at 'BB-'



TBC Bank
Long-term foreign currency IDR: affirmed at 'BB-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb-'
Support Rating: affirmed at '4'
Support Rating Floor: assigned at 'B'



ProCredit Bank (Georgia)
Long-term foreign and local currency IDRs: affirmed at 'BB'; Outlook Stable
Short-term foreign and local currency IDRs: affirmed at 'B'
Viability Rating: affirmed at 'bb-'
Support Rating: affirmed at '3'



JSC Liberty Bank
Long-term foreign currency IDR affirmed at 'B'; Outlook Stable
Short-term foreign currency IDR affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
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