Ukraine could default

The international rating agency Standard & Poor's downgraded credit ratings of the Ukrainian financial institutions, namely Privatbank, Alfa-Bank and KredoBank from ССС+/С up to ССС/С, with negative rating outlook, as reported by RBK Ukraine.

The banks’ exposure to risks arisen due to economic volatility and political instability in the country is rather high. The risks related to the sovereign debt of Ukraine will further have a negative impact on creditworthiness of banks. The employees of the agency reminded that on February 21, 2014 the sovereign credit rating of Ukraine regarding its foreign currency liabilities was lowered from ССС+/С up to ССС/С, with negative rating outlook.

Simultaneously, S&P downgraded credit ratings of KredoBank and Alfa-Bank from uaBB- up to uaССС according to the national scoring scale. In the agency’s opinion this negative rating outlook is evidence of the risk entailing subsequent weakening of financial profiles of banks, in particular assets quality ratios with both capitalization and liquidity ratios, in case political uncertainty in the country and worsening of economic growth prospects will continue.

Meantime, according to S&P’s estimates, Ukraine can default. Worsening political situation exposes Ukraine to risk of non-fulfillment of its external liabilities, i.e. paying off and servicing its sovereign debt. Besides, the today’s situation in Ukraine increases uncertainty as to whether Russia will provide financial support in 2014. In case no significant positive changes happen, this will result in Ukraine’s failure to meet obligations. 

Moreover, the agency says the likelihood of forced hryvnia devaluation in Ukraine grows in accelerating pace and will inevitably hit asset and capital quality ratios of banks.