S&P upgrades Ukrainian ratings; bonds rally; Ukraine invites IMF to resume loan talks; Government sees no threat of debt default; NBU cuts refinancing rates; Banking sector reports losses.
S&P upgrades Ukrainian ratings; bonds rally
International rating agency Standard & Poor’s raised its long-term foreign-currency credit rating on Ukraine to B- from CCC+ and upgraded the country’s local-currency rating to B from B-. The outlook on all ratings is positive.
The rating upgrade came shortly after the newly formed majority coalition in the Verkhovna Rada appointed the government last week, which S&P said strengthened political stability in Ukraine and paved the way for renewing cooperation with the International Monetary Fund. The news fueled the ongoing rally in Ukrainian Eurobonds, pushing their yields, which move inversely to prices, to as low as 6 percent compared to recent highs of 15-18 percent last November.
Ukraine invites IMF to resume loan talks
Deputy Prime Minister Sergiy Tigipko met with IMF Resident Representative in Ukraine Max Alier to request that the Fund send a mission to Kyiv to discuss the resumption of a $16.5 billion Stand-by loan program. The IMF statement released after the meeting stressed the Fund’s readiness to support Ukraine and confirmed a team of Fund experts would arrive in Kyiv this week to assist local authorities in drafting the state budget for 2010. Ukraine received almost $11 billion from the IMF in 2008-2009, and the new government hopes to receive the remaining $6 billion available under the current Stand-by facility by the end of 2010.
Analysts expect the IMF to take a much tougher stance on Ukraine this time around, insisting on unpopular policy measures such as budget spending cuts and gas tariff hikes. Full-fledged loan talks with the Fund are expected to begin around mid-April, after the government finalizes its 2010 budget draft and submits it to parliament.
Government sees no threat of debt default
The Ukrainian government will not default on its foreign and domestic debts, Finance Minister Fedir Yaroshenko said at a press conference. He spoke days after Prime Minister Mykola Azarov said Ukraine was due to repay Hr 44 billion ($5.5 billion) of domestic liabilities by year-end.
This amount includes Hr 11.2 billion of principal and an estimated Hr 10 billion of interest payments on direct domestic liabilities, with the remaining Hr 23 billion likely consisting of so called quasi-state debts such as loans issued by state-owned banks to the oil and gas monopoly Naftogaz Ukrainy. Analysts expect much of the latter debt volume to be either restructured or refinanced. The foreign debt burden the government faces this year is much lighter, with a relatively modest $900 million of principal and $700 million of interest due to be repaid.
NBU cuts refinancing rates
The National Bank of Ukraine cut its refinancing rates by 3-3.5 percentage points to 12.5 percent on collateralized overnight loans and 13.5 percent on blank overnight loans in a bid to stimulate lending activity. However, the decision is expected to have only a marginal effect on the domestic money market and commercial lending rates in the short term as banking liquidity is currently sufficient and banks rarely apply to the central bank for refinancing facilities.
Yet, the NBU decision likely signals the central bank is ready to loosen its monetary policy this year, implying it sees no significant devaluation pressure on the hryvnia in the near term.
Banking sector reports losses
The Ukrainian banking sector reported a net loss of Hr 900 million in February, up 71 percent compared to the month before, bringing its year-to-date losses to Hr 1.4 billion, which is a much better result compared to Hr 2.6 billion of losses domestic banks incurred in January-February 2009.
Sector revenues declined an annualized 18 percent to Hr 21.4 billion but costs were down only 5 percent to Hr 22.8 billion in the first two months of the year. At the same time, provisions to cover bad loans decreased to Hr 3.3 billion in February from Hr 3.6 billion in January and were down a massive 40 percent compared to last year’s average monthly loss provisions of Hr 5.5 billion. February results for individual banks varied widely, with Commerzbank-controlled Bank Forum recording a Hr 269 million loss, Ukrsotsbank almost breaking even with a Hr 1.4 million loss and Raiffeisen Bank Aval recording a marginal profit of Hr 500,000.
