TBILISI

Fitch Ratings has revised the outlooks on two Georgian commercial banks – ProCredit Bank (PCBG) and Halyk Bank (HBG) long-term Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the IDRs at ‘BB+’.

Both banks are in the top ten commercial banks in the ex-Soviet country, which started to demonstrate signs of economic recovery since April.

Fitch said that the revision of the outlooks to Stable followed the recent revision of Georgia’s sovereign rating outlook to Stable from Negative. The banks’ Viability Ratings are unaffected by this rating action.

“The affirmation of PCBG’s and HBG’s IDRs at ‘BB+’ and Support Ratings at ‘3’ reflects Fitch’s view that the banks will likely be supported by their respective parents, ProCredit Holding AG & Co. KGaA (PCH, BBB/Stable) and JSC Halyk Bank (HBK, BBB-/Stable), in case of need,” the agency said in a report.

Fitch said it believed that PCH and HBK had a high propensity to support their Georgian subsidiaries, given full ownership, common branding, strong integration, a record of capital and liquidity support, and reputational risks in case of the subsidiaries default.

Fitch caped PCBG’s ratings at one notch above the ‘BB’ Georgian sovereign rating to reflect the country risks that domestic banks are exposed to.

“In our view, in case of extreme macroeconomic and sovereign stress, there is a material risk of government intervention in the banking sector. Such intervention could limit the ability of PCBG to service its obligations or the parent’s propensity to continue providing support, or both,” the agency said.

Last month, Georgia’s commercial banking sector showed signs of recovery in the first half of the year as lenders reported profits that offset the losses they incurred in the same period a year earlier, when restrictions to stop the spread of the COVID-19 were first put into place, crippling the country’s tourist-reliant economy.

Commercial banks reported a total net profit of 1.059 billion lari ($342 million) from January to June compared to a loss of 477 million lari in the same period in 2020. The country’s central bank said that total income was 2.871 billion lari compared with 2.301 billion lari in the first six months of 2020. Banks almost halved their expenses in that period to 1.694 billion lari, compared with 2.651 billion lari.

The banks’ total assets rose to 55.981 million lari by July 1 from 49.276 million lari a year ago.

Total liabilities rose to 49.145 million lari from 44.073 million lari. Capital rose 6.836 million lari from 5.203 million lari.

Georgia’s banking sector, which includes 15 commercial banks, of which 14 have foreign capital, started to show its first signs of recovery at the beginning of the year, when some of the restrictions imposed by the pandemic were first eased. In March, Fitch Ratings revised the outlooks on three major commercial banks in Georgia – TBC Bank, Bank of Georgia and Liberty Bank – to Stable from Negative, while affirming their long-term IDRs.

In July, Georgia revised its economic growth forecast to 7.7 percent from a previous projection of 4.3 percent in 2021 amid signs of economic recovery, and in line with the International Monetary Fund’s (IMF) current projection.