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BPS-Sberbank -- Moody's places the ratings of Belarus' BPS-Sberbank on review for downgrade

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Rating Action: Moody's places the ratings of Belarus' BPS-Sberbank on review for downgrade

Global Credit Research - 01 Sep 2020

London, 01 September 2020 -- Moody's Investors Service, ("Moody's") today placed on review for downgrade BPS-Sberbank's B2 long-term local-currency deposit rating, its Caa1 long-term foreign-currency deposit rating, its Baseline Credit Assessment (BCA) of b3 and Adjusted BCA of b2. The outlook on the long-term deposit ratings, as well as the issuer outlook, was changed to rating under review from stable. Concurrently, Moody's affirmed the bank's short-term deposit ratings of Not Prime (NP).

For a detailed list of ratings affected, please refer to the end of this Press Release.

RATINGS RATIONALE

THE REVIEW FOR DOWNGRADE REFLECTS POTENTIAL FOR POLITICAL INSTABILITY TO SPILL OVER INTO LIQUIDITY AND ASSET-QUALITY RISKS

The rating action was driven by social risk considerations, namely, the risks for the Belarusian banking sector's liquidity stemming from the political instability. Since the country's presidential elections on 9 August, there has been widespread social unrest in Belarus (B3 stable). This heightened political instability is reflected in the interbank market and the behaviour of some depositors which increases pressure on bank liquidity. In addition, prolonged political turmoil would be disruptive for economic activity, already damaged by the coronavirus outbreak, and thus cause a more significant than expected deterioration in asset quality in the coming months.

The review for downgrade of BPS-Sberbank's ratings thus reflects the potential for political instability to spill over into both liquidity and asset-quality risks for the banking system and the bank.

On 12 August, the country's central bank, the National Bank of the Republic of Belarus (NBRB), said that banks' retail depositors increased withdrawals and moved cash savings to foreign currencies from the Belarusian ruble. The magnitude of the outflows at BPS-Sberbank is currently moderate, but if intensified, such outflows could have a material impact on the bank's standalone creditworthiness, given the importance of retail customer deposits as one of the bank's key funding sources. These rising liquidity risks are partially mitigated by BPS-Sberbank's solid liquidity cushion and the fact that a large portion of the bank's retail deposits have longer maturities and cannot be withdrawn on demand. However, this does not fully mitigate the risk of currency and maturity mismatches, because the bank's foreign-currency (FX) liquid assets do not fully cover its FX short-term liabilities. The NBRB will continue to provide liquidity to the system, but it is less able to provide FX liquidity because the sovereign has only modest foreign-currency reserves.

Moody's further expects BPS-Sberbank's problem loans to increase in the coming months, as they will for the rest of the banking sector, because the disruption to economic activity from the political turmoil and strikes adds to the pressure resulting from the coronavirus outbreak. In particular, the performance of foreign-currency loans will likely deteriorate as the borrowers' repayment capacity will be undermined by the near-30% depreciation of the Belarusian ruble since the beginning of the year

AFFILIATE SUPPORT

BPS-Sberbank's B2 long-term local currency deposit rating incorporates our assessment of a very high probability of affiliate support from Russia's Sberbank (Baa3 stable, ba1), driven by (1) the parent's strategic commitment to and majority stake in BPS-Sberbank; (2) the bank's strong strategic fit with the parent; and (3) the high reputational links between the bank and its parent. Importantly in the current circumstances, BPS-Sberbank benefits from access to liquidity support from its parent bank in case of need.

THE FOCUS OF THE REVIEW

The review for downgrade on BPS-Sberbank's ratings will focus on the stability of the country and its financial system, including but not limited to the magnitude of deposit outflows, their impact on the bank's liquidity position and its ability to provide customers with unrestricted access to their funds.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A positive rating action on BPS-Sberbank's ratings is currently unlikely, given the review for downgrade. However, the ratings may be confirmed if the bank's deposits stabilize, its liquidity remains solid and credit losses do not result in a material deterioration of the bank's capital position. .

A significant deterioration of BPS-Sberbank's liquidity or capital position would result in a downgrade of the bank's Baseline Credit Assessment (BCA). The bank's long-term deposit ratings could be downgraded in case of severe deterioration of its standalone credit profile or restrictions on customers' payments.

LIST OF AFFECTED RATINGS ..Issuer: BPS-Sberbank On Review for Downgrade:

.... Adjusted Baseline Credit Assessment, currently b2, Placed on Review for Downgrade

.... Baseline Credit Assessment, currently b3, Placed on Review for Downgrade

.... Long-term Bank Deposits (Local Currency), currently B2, Placed on Review for Downgrade, Outlook Changed To Rating Under Review From Stable

.... Long-term Bank Deposits (Foreign Currency), currently Caa1, Placed on Review for Downgrade, Outlook Changed To Rating Under Review From Stable

Affirmations:

.... Short-term Bank Deposits, Affirmed NP

Outlook Actions:

....Outlook, Changed To Rating Under Review From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are unsolicited.

a.With Rated Entity or Related Third Party Participation: YES

b.With Access to Internal Documents: NO

c.With Access to Management: YES

For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Svetlana Pavlova, CFA Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service Limited, Russian Branch 7th floor, Four Winds Plaza 21 1st Tverskaya-Yamskaya St. Moscow 125047 Russia JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Yaroslav Sovgyra, CFA Associate Managing Director Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454

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