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 Fitch says recovery in Ukraine elusive despite debt restructuring

Ukrainian bank ratings are likely to remain at current weak levels for the foreseeable future despite signs of some improvement in the operating environment now that agreement to restructure USD18bn of sovereign external debt has been reached.

This is said in the Fitch Ratings report on Ukraine, Censor.NET informs.

The country's three largest banks also restructured around USD2.9bn of debt owed to international creditors, easing near-term liquidity risks. Nonetheless, capital shortfalls for the sector are considerable and capital adequacy ratios no longer meet minimum requirements. Viability Ratings assigned by Fitch to Ukraine's banks are mostly in the 'ccc' level, indicating substantial credit risk and likelihood of default, the agency reports.

Read more: Russia wants to ruin Ukraine and hold a veto over efforts to rescue it, - Financial Times

Deposit trends are nevertheless becoming less negative, with outflows slowing to 2.5% in 2Q15 against 8% in 1Q15 and a 22% outflow reported by the sector in 2014, adjusted for exchange rate effects. Stabilisation of the hryvnia since 2Q15 supports deposit stability but confidence levels are low and deposit volatility is likely to return if the exchange rate comes under renewed pressure.

Read more: Fitch downgraded Ukraine's foreign currency IDRs to "restricted default"

Fitch Ratings believes it could take several years before deposit stability reverts to pre-crisis levels and pricing normalises.

They also say that Ukraine's recovery prospects are highly dependent on macro-economic improvement but the operating environment is particularly weak. Fitch forecasts GDP to contract by 10% in 2015, following contraction of 6.8% in 2014.

Read more: S&P upgraded Ukraine's foreign currency sovereign ratings

Reaching agreement with creditors on USD18bn of sovereign bonds in August unlocked the inflow of IMF funding, part of a USD40bn assistance programme. Agreement still has to be reached about how to restructure a USD3bn bond owed to Russia.

Ukraine's foreign currency issuer default rating was downgraded to 'Restricted Default' on Oct. 6, 2015. Ukraine's ratings will be upgraded shortly after Fitch determines that the exchange has been successful. The new rating will be consistent with Ukraine's prospective credit profile and debt structure, the agency reports.
 
 
 
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