Yerevan /Mediamax/. International Fitch Ratings Company affirmed on April 30 the long-term issuer default (IDR) ratings for “VTB Bank (Armenia)” (‘BB+’) and “ACBA-Credit Agricole Bank” (‘BB’).

Mediamax reports referring Fitch Ratings that outlooks on both banks are stable.
Fitch Ratings also affirmed individual ratings for “VTB Bank (Armenia)” ('D/E') and “ACBA-Credit Agricole Bank” ('D'), short-term foreign and local currency IDR affirmed at 'B' for both banks, as well as support rating affirmed at '3' for both banks.

The IDRs of both banks reflect Fitch's view of the moderate probability of support being forthcoming, if required, from their owners.

Fitch believes Russia's JSC “VTB Bank” (rating - 'BBB'/Negative) would have a strong propensity to support “VTB Bank (Armenia)”, in case of need.

Fitch conditions this by the fact that “VTB Bank” is 100% owner of “VTB Bank (Armenia)”, by the strategic importance of CIS markets for VTB and the small size of “VTB Bank (Armenia)” relative to its parent.

In respect to “ACBA-Credit Agricole Bank”, Fitch believes that the probability of support being forthcoming from Credit Agricole Banking Group ('AA-' /Stable) is undermined by Credit Agricole minority stake (28%) in the capital of the Armenian bank and the fact that the Armenian market does not appear to be of high importance for Credit Agricole.

These considerations are reflected in the lower long-term IDR of “ACBA-Credit Agricole”, relative to “VTB Bank (Armenia)”.

 “Nevertheless, support is factored into the ratings of “ACBA-Credit Agricole” due to brand association, the close involvement of Credit Agricole in establishing and supervising “ACBA-Credit Agricole Bank” and its relatively small size”, Fitch Ratings notes.

The Rating Company noted that individual ratings of both banks reflect rapid loan growth in recent years, the high proportion of foreign currency loans and the high-risk operating environment, but also take into account the solid capitalisation of both banks and their broad domestic franchises.

 “However, the high concentration of “VTB Bank (Armenia)” loan book, its relatively high exposure to the vulnerable construction sector, the somewhat higher current loan impairment level, larger tier 2 component in capital and much higher reliance on shareholder funding/liquidity support make the bank weaker on a standalone basis, which is reflected in its Individual Rating of 'D/E'”, Fitch notes. 

Touching upon the individual rating of “ACBA-Credit Agricole Bank”, Fitch takes into account the high granularity of its loan portfolio, diversified funding base and stable liquidity position, high profitability and good corporate governance.

The Rating Company notes that “ACBA-Credit Agricole Bank” is Armenia's largest bank by assets and loans, with market shares of 12% and 13%, respectively, at end-2008. It has a leading position in agricultural lending with a 71% market share.

Fitch notes that “VTB Bank (Armenia)” held 11% of sector loans and 5.9% of retail deposits at end-2008. The bank has an extensive branch network covering all regions of Armenia.