YEREVAN, January 20. / ARKA /. Moody's Investors Service has 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.

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.

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.

The downgrade of the long-term foreign-currency deposit ratings of Ardshinbank and VTB Bank (Armenia) takes into account the lowering of Armenia's foreign-currency deposit ceiling to B1 from Ba3 on 15 January 2015. Moody's foreign-currency ceilings determine the highest rating possible in a given country for debt instruments denominated in foreign currency issued by domestic borrowers other than the national government.

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.

The assets of VTB Bank (Armenia) grew last year by 25.6 percent to 379.6 billion drams; its liabilities grew by 26.3 percent to 334.8 billion drams; its  credit investments grew by 11.6 percent to 244.3 billion drams and its profit dropped to 777.14 million drams from 5.6 billion drams in 2013.

Ardshinbank’s assets as of October 1, 2014 stood at more than 273.1 billion drams, its liabilities – at about 226 billion drams, lending – at 182.9 billion dram and the capital – at 47.1 billion drams. In the third quarter of 2014 it earned about 4 billion drams in net profit, a 2.06% decline from the year earlier. ($1-477.91 drams). -0-