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Fitch Revises Outlook on Procredit Bank Georgia & JSC Liberty Bank to Positive

Fitch Ratings has revised the Outlooks on the Long-term Issuer Default Ratings  of ProCredit Bank Georgia  and JSC Liberty Bank to Positive from Stable and affirmed the IDRs at ‘BB’ and ‘B’, respectively. Fitch has also affirmed the banks’ Support Ratings at ‘3’ and ‘4’, respectively.

A full list of rating actions is at the end of this commentary. The revision of the Outlooks to Positive follows the revision of the Outlook on Georgia’s sovereign rating to Positive from Stable

KEY RATING DRIVERS: PCBG’s IDRS AND SUPPORT RATING The affirmation of PCBG’s ‘BB’ Long-term IDRs, one notch above the sovereign rating, and ‘3’ Support Rating, reflect Fitch’s view of the moderate probability of support from the bank’s 100% shareholder, ProCredit Holding AG & Co. KGaA . Fitch views the propensity of PCH to provide support as high. However, PCBG’s ability to receive and utilise this support could be restricted by transfer and convertibility restrictions. PCBG’s Long-term IDR is constrained by Georgia’s ‘BB’ Country Ceiling, whilst its local currency Long-term IDR also takes into account Georgian country risks. KEY RATING DRIVERS: LB’S SUPPORT RATING AND SUPPORT RATING FLOOR The affirmation of LB’s Support Rating and Support Rating Floor (SRF) reflect Fitch’s view of the limited probability of support available from the Georgian government.

In Fitch’s view, the authorities would likely have a high propensity to support LB, notwithstanding its moderate share (around 8%) of banking sector assets. This reflects the bank’s important role as the primary distributor of pensions and welfare payments in Georgia. LB fulfils a unique social function in this respect, made possible by its extensive branch network, which is the largest and most geographically spread in the country. Fitch’s view of support also takes into account the support made available to LB in 2009. However, LB’s Support Rating and SRF are constrained by the potentially limited ability of the authorities to provide support. RATING SENSITIVITIES: PCBG’s IDRs AND SUPPORT RATING The Positive Outlook on PCBG’s IDRs follows the revision of the Outlook on Georgia’s sovereign ratings to Positive from Stable. Should Georgia’s IDRs be upgraded and the Country Ceiling raised, PCBG’s Long-term IDRs, which take into account Georgian country risks, would likely also be upgraded.

Any change in Fitch’s view of support available to PCBG from PCH would likely also result in a change to PCBG’s Long-term IDRs. RATING SENSITIVITIES: LB’s SUPPORT RATINGS AND SRF LB’s Long-term IDR is at the level of its Viability Rating but is also underpinned by potential government support, as reflected in its ‘B’ SRF. The revision of the Outlook on the bank’s IDR to Positive from Stable reflects the Positive Outlook on the sovereign rating. In view of LB’s important social function in Georgia and the bank’s track record of government support, an upgrade of Georgia’s IDRs, indicating the increased ability of the government to provide support, would likely lead to an upward revision of LB’s SRF. This in turn would drive an upgrade of the bank’s Long-term IDR, and the bank’s ratings would become driven by support rather than its intrinsic strength.