Fitch Ratings-London/ Moscow-16 December 2008: Fitch Ratings has today downgraded the Individual rating of JSC BTA Bank Georgia (BTA Georgia) to ‘E’ from ‘D/E’. The agency has affirmed the bank’s other ratings, including its Long-term Issuer Default Rating (IDR) of ‘B’ with a Negative Outlook. A full list of rating actions is provided at the end of this announcement.
The downgrade of the Individual rating reflects Fitch’s view of the bank’s weakened funding profile and deteriorating asset quality in a challenging operating environment. The Individual rating also considers BTA Georgia’s limited franchise and track record. However, the bank’s stand-alone credit profile is supported by currently solid capital ratios.
Customer funding decreased by a very high 55% in 9M08, driven by the withdrawal of over 90% of corporate term deposits. Fitch was informed that a large volume of these deposits related to balances of companies involved in local construction projects. As a result, at end-Q308 the customer funding profile of the bank had shifted strongly towards current accounts which constituted 83% of total customer accounts (end-2007: 16%) or 40% of total funding. BTA Georgia’s funding profile remains highly concentrated and the bank continues to be strongly reliant on funding from its shareholder, Kazakhstan’s BTA Bank (BTA) and companies related to BTA. This makes BTA Georgia’s stand-alone liquidity potentially vulnerable, although the liquidity cushion is currently reasonable and the bank was able to withstand a large (12%) outflow of customer funding in August (broadly in line with other Georgian banks) during the Georgia-Russia military conflict that month.
Asset quality is deteriorating, with loans overdue by more than 90 days accounting for 4.8% of the gross loan portfolio at end-Q308 (end-2007: 2.4%). Although these non-performing loans were covered by reserves, Fitch notes that the loan portfolio will continue to season in what is now a more challenging operating environment. Fitch also notes the very concentrated loan book and (as for most Georgian banks) the high proportion of foreign currency denominated lending, the latter of which could create additional credit risk in the event of a sharp local currency depreciation.
BTA Georgia's Long- and Short-term IDRs and Support rating are driven by potential support from BTA (‘BB’/Outlook Negative), which currently owns a 49% stake in BTA Georgia. However, BTA’s ability to provide such support is constrained by its stand-alone financial strength, as reflected in its Individual ‘D’ rating, and the potential for the Kazakh authorities to restrict the extent to which local banks can support their foreign affiliates. The Negative Outlook on BTA Georgia’s Long-term IDR reflects the potential for further deterioration in BTA’s credit profile and also greater uncertainty regarding plans for the bank’s consolidation by BTA.

BTA Georgia, former Silk Road Bank, is a small-sized Georgian bank, which was established in 2000, and since 2005 has been affiliated with BTA. The bank held only 1.7% of system assets at end-Q308, but had grown rapidly to end-2007, especially in retail business, before a slowdown this year.

Rating actions as follows:
Long-term Issuer Default rating (IDR): affirmed at ‘B'; Outlook Negative
Short-term IDR: affirmed at 'B'
Individual: downgraded to 'E' from 'D/E'
Support: affirmed at '4'