Overview
- On April 8, 2022, we revised the outlook on our Armenia long-term rating to stable from positive.
- We also reduced our 2022 real GDP growth forecast for Armenia to 1.3% from 4.7% because we expect its largest trading partner, Russia, to enter a deep recession triggered by sanctions following its military actions in Ukraine.
- In our view, lower macroeconomic growth prospects in Armenia are likely to reduce growth and profitability prospects in the banking sector, including for Ameriabank CJSC.
- Therefore we revised our Ameriabank rating outlook to stable from positive and affirmed our 'B+/B' long- and short-term issuer credit ratings on the bank.
- The stable outlook reflects our expectation that Ameriabank's sufficient liquidity, prudent risk management, and strong local brand will support its creditworthiness amid a low growth environment in Armenia over the next 12 months.
Rating Action
On April 12, 2022, S&P Global Ratings revised its Ameriabank CJSC rating outlook to stable from positive and affirmed its 'B+/B' long- and short-term issuer credit ratings on the bank.
Rationale
The revision of our Ameriabank rating outlook to stable from positive follows the same action on Armenia. The rating on Ameriabank is constrained by our long-term foreign currency rating on Armenia (B+/Stable/B). Therefore, the 'B+' long-term rating on Ameriabank is one notch lower than our 'bb-' stand-alone credit profile (SACP) assessment. We do not rate Armenian banks above the sovereign because their exposures are predominantly in Armenia, with strong links to the domestic economy from a business, funding, and lending point of view.
We expect real GDP growth in Armenia to slow to 1.3% in 2022. In our view, sanctions imposed on Russia after its invasion of Ukraine will cause a deep recession. This will have knock-on effects for Armenia, given Russia is its largest trading partner, accounting for about 25-35% of exports and imports (see "Armenia Outlook Revised To Stable From Positive On Increased Risks To Growth; 'B+/B' Ratings Affirmed," published April 8, 2022, on RatingsDirect). Weaker economic growth will hamper Armenia's fiscal trajectory because the government will need to use its fiscal buffers to support the economy, while missing the 7% growth target underpinning its budget. Higher import prices, especially for food, will widen the current account deficit. Meanwhile, price increases for other commodities such as copper, a key Armenian export, will not be sufficient to offset the terms-of-trade shock. Higher import prices will also lead to higher inflation, pressuring the Central Bank of Armenia to potentially raise interest rates further following its 125-basis-point hike on March 15, 2022.
We expect the Armenian banking sector experience low growth prospects for lending and profitability in 2022 and a moderate deterioration of asset quality. Following a few years of double-digit growth, loans in the banking sector contracted about 5% in 2021. We expect loan growth to resume only in 2023 due to the uncertain geopolitical and economic environment in Armenia this year. We also forecast some moderate growth in nonperforming loans (NPLs) in 2022-2023 from 3.9% as of Feb. 1, 2022, due to volatility in dram exchange rates and an expected reduction in remittances. The Armenian banking sector's exposure to Russia and Ukraine is relatively small with only one midsize subsidiary of sanctioned Russian group VTB Bank active in the country.
The ratings reflect Ameriabank's leading market position in Armenia and prudent risk management. Ameriabank's strong domestic brand, professional management team, advanced digitalization strategy, wealthy and supportive controlling shareholder, and adequate corporate governance, backed by minority shareholders--including the European Bank for Reconstruction and Development and Asia Development Bank--support its business position in the small Armenian banking sector. We believe that the bank's conservative and well-developed risk-management practices and sound business strategy will enable it to sustain asset quality at adequate levels in 2022.
Outlook
The stable outlook reflects our expectation that Ameriabank's sufficient liquidity, prudent risk management, and strong local brand will support its creditworthiness amid a low growth environment in Armenia over the next 12 months.
Upside scenario
A positive rating action could follow over the next 12 months if economic growth recovers faster than expected in 2022 and accelerates over the medium term or Armenia's external debt reduces faster than we forecast. This should translate in better growth and profitability prospects in the Armenian banking sector, supporting further profitability and the growth of Ameriabank's business.
Downside scenario
Conversely, a negative rating action could follow over the next 12 months if economic growth continues to weaken, with the country potentially falling into recession and requiring larger fiscal support than we currently anticipate, or if the external deleveraging trend reverses, potentially increasing risks for the Armenian banking system.
Ratings Score Snapshot
To | From | |
---|---|---|
Issuer Credit Ratings | B+/Stable/B | B+/Positive/B |
Anchor | bb- | bb- |
Business Position | Adequate (0) | Adequate (0) |
Capital & Earnings | Moderate (0) | Moderate (0) |
Risk Position | Adequate (0) | Adequate (0) |
Funding and Liquidity | Adequate and Adequate (0) | Adequate and Adequate (0) |
Potential CRA Adjustment | 0 | 0 |
Stand-Alone Credit Profile | bb- | bb- |
Support | 0 | 0 |
GRE Support | 0 | 0 |
Group Support | 0 | 0 |
Sovereign Support | 0 | 0 |
ALAC Support | 0 | 0 |
Additional Factors | (1) | (1) |
ESG credit indicators: E-2, S-2, G-2
Related Criteria
- General Criteria: Hybrid Capital: Methodology And Assumptions, March 2, 2022
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
- Criteria | Financial Institutions | General: Financial Institutions Rating Methodology, Dec. 9, 2021
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions, Nov. 20, 2013
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
Related Research
- Armenia Outlook Revised To Stable From Positive On Increased Risks To Growth; 'B+/B' Ratings Affirmed, April 8, 2022
Ratings List
Ratings Affirmed; Outlook Action | ||
---|---|---|
To | From | |
Ameriabank CJSC |
||
Issuer Credit Rating | B+/Stable/B | B+/Positive/B |
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; or Stockholm (46) 8-440-5914
Additional Contact: | Financial Institutions EMEA; Financial_Institutions_EMEA_Mailbox@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.