Moody's Investors Service has today downgraded the long-term local-currency deposit and foreign-currency senior unsecured debt ratings of Ardshinbank to Ba3 from Ba2, and downgraded Ardshinbank's and VTB Bank (Armenia)'s foreign-currency deposit ratings to B1 from Ba3.

The outlook on the two banks' ratings has been changed to negative from stable. These actions follow the weakening of Armenia's credit profile, as reflected in the downgrade of Armenia's government debt rating to Ba3 from Ba2 on 15 January 2015, as well as the country ceiling for foreign-currency deposits to B1 from Ba3.

Moody's Investors Service press release says:

RATINGS RATIONALE

ARDSHINBANK

The downgrade of Armenia's government debt rating with a negative outlook has prompted a downgrade of Ardshinbank's supported ratings, which, before the downgrade, benefited from one notch of government (systemic) support uplift. While Moody's considers that the Armenian government will remain willing to assist Ardshinbank in the event of need (because of its systemic importance), the government's capacity to do so has lessened, as expressed by the downgrade of the government debt rating to Ba3 from Ba2. Therefore, Moody's expectation of systemic support does not result in any uplift for Ardshinbank's local-currency deposit and foreign-currency debt ratings, which are now solely based on the bank's baseline credit assessment (BCA) of ba3.

At the same time, Moody's affirmed and changed to negative the outlook on Ardshinbank's standalone bank financial strength rating (BFSR) of D- (equivalent to ba3 BCA), reflecting the outlook on the sovereign rating. Given the bank's exposure to the deterioration in Armenia's operating environment, the bank's standalone credit profile is likely to be influenced by the pressures on its asset quality and profitability in the medium term. Thus, all Ardshinbank's ratings carry a negative outlook.

VTB BANK (ARMENIA)

Moody's affirmed and changed to negative the outlook on VTB Bank (Armenia)'s standalone BFSR of D- (equivalent to ba3 BCA) and its supported local-currency deposit rating of Ba2, reflecting the outlook on the sovereign rating. Given the bank's exposure to the deterioration in Armenia's operating environment, the bank's standalone credit profile is likely to be influenced by the pressures on its asset quality and profitability. Furthermore, the bank's stand-alone credit assessment is closely linked with VTB Bank, JSC's stand-alone credit standing (BFSR of D- on review for downgrade, equivalent to ba3 BCA) as it represent an integral part of the group's franchise and business activity.

WHAT COULD MOVE THE RATINGS UP/DOWN

The negative rating outlooks imply that upward pressure on the long-term debt and deposit ratings of Ardshinbank and VTB Bank (Armenia) is unlikely in the next 12 months.

Moody's might downgrade the ratings of Ardshinbank and VTB Bank (Armenia) further if Moody's observes any evidence of erosion of the risk-absorption capacity and financial fundamentals of the affected entities. This could stem, for example, from increasing challenges within the domestic operating environment. Conversely, improvements in Armenia's economic growth prospects could stabilise the ratings of these two banks at the current levels.

It should be noted that Moody's Investors Service assigns a rating to only Ardshinbank and VTB Bank (Armenia) among Armenian banks.