ArmInfo.Fitch is revising the outlook on the ratings of Armenian banks towards "Negative", following the same worsening outlook on the sovereign rating of Armenia. This was reported by Fitch in a report published on April 16.
The report notes that Fitch Ratings has revised the Outlooks on ACBA-Credit Agricole CJSC's (ACBA) and Ardshinbank CJSC's (Ardshin) Long-Term Issuer Default Ratings (IDRs) to Negative from Stable and affirmed the IDRs at 'B+'.
The rating actions reflect the significant deterioration in the outlook for Armenia's economy since Fitch affirmed the banks' ratings with Stable Outlooks on 19 March 2020. Under Fitch's baseline scenario, GDP growth will slow significantly in 2020 to 0.5%, compared with 7.5% in 2019, before recovering in 2021.
''Government subsidies to priority segments and co-financing under the coronavirus response package (equivalent to 2.3% of GDP) will soften the economic shock, but uncertainty about the extent and the duration of the health crisis implies material downside risks to our baseline forecasts. Fitch recently revised the Outlook on the sovereign rating in light of the anticipated adverse impacts of the coronavirus outbreak ("Fitch Revises Outlook on Armenia to Negative; Affirms at 'BB-' dated 3 April 2020)
Fitch has revised the sector outlook for Armenian banks to negative from stable as it expects that weaker business activity, lower household incomes (due to higher unemployment and lower remittances) and potentially greater currency volatility will increase performance pressures and risks to banks' financial profiles.
Fitch expects regulatory forbearance measures to help banks manage problem assets and solvency metrics in local accounts, reducing the risk of capital breaches. However, it believes Armenian banks generally have limited flexibility to cope with the current economic challenges given vulnerable asset quality, limited earnings resilience and moderate regulatory capital buffers.
Factors that could, individually or collectively, lead to negative rating action/downgrade: Both banks' ratings are most sensitive to the severity and duration of Armenia's economic downturn that is resulting from the coronavirus pandemic.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch would likely to revise the Outlooks to Stable if the health crisis is contained quickly, Armenia's economy recovers sharply and the banks are able to withstand rating pressures by maintaining reasonable financial metrics.
