Fitch Rates TBC Bank Perpetual AT1 Notes Final B-


July 5, Fineko/ Fitch Ratings-Moscow/London-04 July 2019: Fitch Ratings has assigned JSC TBC Bank's (TBC) USD125 million perpetual additional Tier 1 (AT1) notes a final long-term rating of 'B-'.

The assignment of the final rating follows the completion of the issue and receipt of documents conforming to the information previously received. The final rating is in line with the expected rating assigned on 24 June 2019 (see 'Fitch Rates TBC's Upcoming Perpetual AT1 Notes 'B-(EXP)' at   

The notes' rating is three notches below the bank's 'bb-' Viability Rating (VR). According to Fitch's Bank Rating Criteria, this is the highest possible rating that can be assigned to deeply subordinated notes with fully discretionary coupon omission issued by banks with a VR anchor of 'bb-'. The notching reflects the notes' higher loss severity in light of their deep subordination and additional non-performance risk relative to the VR given a high write-down trigger and fully discretionary coupons.


The notes are perpetual, deeply subordinated, fixed-rate resettable AT1 debt securities, which are expected to qualify as regulatory AT1 capital (equal to about 3% of end-1Q19 regulatory risk-weighted assets). The coupon was set at 10.775% at the time of the issue.

The notes have a fully discretional coupon omission feature and are subject to partial or full write-down if TBC's core equity Tier 1 (CET1) ratio falls below 5.125% (versus the 4.5% regulatory minimum, excluding buffers), or in case of regulatory interventions by the National Bank of Georgia (NBG). Fitch believes the latter is only possible if TBC breaches minimum regulatory capital or liquidity requirements, or local regulation in any other form. This is currently not expected by Fitch, given the Stable Outlook on TBC's 'BB-' Long-Term Issuer Default Rating (IDR).

Fitch expects the coupon omission to occur before the bank breaches the notes' 5.125% CET1 trigger, most probably if TBC's capital ratios fall below minimum capital requirements, including buffers, established by the NBG. This risk is somewhat mitigated by TBC's reasonable internal capital generation capacity and the bank's intention to maintain the combined capital ratios at least 100bp higher than the minimum required levels.

TBC's regulatory core Tier 1 and Tier 1 ratios were 13.4% and 13.8%, respectively, at end-1Q19 compared with the statutory minimums (with Pillar 1 and 2 buffers) of 9.8% and 11.9%, respectively. TBC's regulatory total capital ratio was 19.1% at end-1Q19 versus a 16.9% minimum requirement (with buffers). Moderate headroom over the minimum capital requirements at end-1Q19 is somewhat undermined by a planned dividend distribution equal to 25% of net income for 2018 (0.85% of end-1Q19 risk-weighted assets).

The notes have no established redemption date. However, TBC has an option to repay the notes after the first coupon reset date (in 2024) and on every subsequent interest payment date, subject to NBG's approval.

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