Bank deposit ratings

To inquire about all terms of rating procedure, please contact:
Yana Melnik (Acting Director of Department)
YMelnik@credit-rating.com.ua

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Credit-Rating has recently initiated assignment of  bank deposit ratings (BDR). The BDR is assigned to a bank in accordance with the agencys specially developed rating scale and exhibits the deposits relative strength as compared with deposits in other Ukrainian banks.

The BDR reflects Credit-Ratings independent opinion with regard to banks capacity to timely and in full meet its commitments on the deposit obligations in the course of the next 12 months.

This type of rating has been developed in order to protect banks depositors via their informing with regard to strength of the banking institutions. This rating mirrors probability of obstacles for timely repayment of deposits (in case of introduction of regulatory restrictions for before due repayment of deposits, the repayment upon expiration of the deposit agreement shall be considered the timely repayment of deposits.)

Unlike banks general credit rating, the BDR takes into account priorities for meeting commitments on the banks obligations. The BDR correlates with the banks rating, yet being assigned by a special scale, which is employed for financial institutions only.

The BDR enables potential depositors to select the most reliable banks and to decide on prolongation of deposit agreement.

The BDR is based on information furnished by the bank, which has previously went through procedure of assignment of banks general rating, and on other information the agency deems reliable.

Credit-Rating employs its own criteria in assessment of the bank's deposit strength and examines a set of qualitative and quantitative indicators and their impacts.

The set of criteria is aimed at assessment of short-term deposits strength, thus regular revision of the ratings is conducted.

The principal criteria in assignment of the BDR are the following:

• Liquidity

Liquidity reflects banks capacity to meet its commitments on the obligations, which is greatly important under limited access to funding.

In assessment of liquidity the agency evaluates the share of high liquid assets in net assets and the indicator of quick liquidity (the extent of coverage of unstable and conditionally stable assets). The indicators exhibit the banks own current liquidity and have significant importance under chaotic outflow of resources. Basing on these indicators, the agency evaluates the volume of resources, which outflow may be compensated with the own liquid assets avoiding additional funding in short-term prospective.

• Structure, concentration and stability of resource base

This criterion mirrors stability of banks liabilities. In assessment of resource's quality the agency considers bank's dependency upon unstable liabilities (specifically, the extent of employment of market funding, and banks and customers funds), banks provision with own liabilities (or easily accessed resources), dependency upon certain lenders, dynamic of resources raised and level of financial support from owners and/or regulator.

The excessive concentrations in resources highly jeopardize maintaining necessary level of liquidity. In the event of rapid outflow of customers' funds, the banks liquidity may be threatened.

• Diversification and asset quality

This criterion mirrors current quality of income-generating assets, the potential risks of their deterioration and possible impact of the deterioration on stability of the banking institution. The agency evaluates the share and dynamics in changes of non-performing loans, the level of their coverage with the reserves allocated, and the concentration of deposits. The timely and full repayment of banks funds and consequently the banks liquidity is dependent upon the asset quality. The diversification of assets mitigates risks of simultaneous failure of return significant amounts of funds. The allocated reserves act as an air-bag in case the problematic indebtedness occurs.

• Performance efficiency

This criterion mirrors quality of management of resources and affects the sufficiency of cash flow generation for funding the obligations. Moreover, poor bank's performance efficiency may be reason for owners to reject from engagement in banking business.

• Vulnerability to adverse economic or political factors

This criterion is a quantitative banks indicator. The agency evaluates banks dependency upon certain transactions, markets, industries and analyzes their development trends. The agency also analyzes structure of shareholders and other stakeholders, and their influence on Ukraine's politics and economy. Moreover, the agency takes into account the dependency upon the budget funds and upon relations with state and municipal authorities, organizations and institutions, and the perspectives and risks of such relations. In case the bank is dependant upon development in certain industries, the negative development trends in these industries may negatively affect the bank.

• Availability of support and external funding

This criterion is analyzed for better understanding the bank's ability to get external funding in case of necessity.

The analysis captures the following:

• Support from shareholders or associated entities;
• Probability of lending from the National Bank of Ukraine, access to state support;
• Access to funds in interbank market;
• Access to funding via issuance of securities;
• Access to international financial markets.

Apart from the above mentioned factors, Credit-Rating may also take into consideration additional specific factors inherent to certain banks.

• Scale of Bank Deposit Ratings
• Bank deposit ratings