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Fitch Keeps Asian-Pacific Bank's 'CCC' IDRs on RWN; Downgrades VR to 'f'
May 15, 2017 / 3:19 PM / in 6 months

Fitch Keeps Asian-Pacific Bank's 'CCC' IDRs on RWN; Downgrades VR to 'f'

(The following statement was released by the rating agency) LONDON, May 15 (Fitch) Fitch Ratings has maintained PJSC Asian-Pacific Bank's (APB) Long-Term Issuer Default Ratings (IDRs) of 'CCC' on Rating Watch Negative (RWN). At the same time, the agency downgraded APB's Viability Rating (VR) to 'f' from 'ccc'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS The downgrade of APB's VR to 'f' reflects Fitch's view that the bank has a material capital shortfall. APB is currently dependent on forbearance from the Central Bank of Russia (CBR) with respect to provisioning of the exposure to its fully-owned defaulted banking subsidiary, M2M Private Bank (M2M), without which it would be in breach of required minimum regulatory capital ratios. APB's regulatory tier 1 and total capital ratios stood at 7.1% and 10%, respectively, at end-1Q17 (minimum levels 6% and 8%, or 7.25% and 9.25% including capital buffers). At that date, APB's RUB7.2 billion debt exposure to M2M carried only a 10% reserve, meaning the unprovisioned portion was equal to 80% of APB's tier 1 capital. APB has agreed with the CBR to fully reserve (or recover) this exposure by end-2017. The bank should be able to finance a significant portion of these provisions out of pre-impairment profit, but will need to generate close to the planned RUB3 billion of recoveries in order to avoid further pressure on capital. Equity exposure to M2M is already deducted from regulatory capital. APB's capital position is further aggravated by its significant exposure to related parties, which net of reserves was equal to 22% of end-2016 regulatory tier 1 capital. APB's Fitch Core Capital (FCC) ratio at end-2016 was 13.9%, significantly higher than the regulatory ratio due to lower reserves and risk-weights. Pre-impairment profitability is reasonable, and was equal to RUB5.3 billion (or 5.5% of average loans) in 2016, which may help the bank to rebuild its capital over time. Equity injections from new investors, deleveraging and asset sales are also being considered by management to support the bank's solvency, but in Fitch's view such initiatives could be challenging to realise. APB's 'CCC' Long-Term IDRs reflect Fitch's view that default is a real possibility given the bank's weak capital position. However, the ratings also reflect the fact that the bank is currently servicing its obligations and has a reasonable liquidity cushion (net of wholesale funding repayments over the next 12 months, equal to 25% of deposits at end-4M17). The RWN on the Long-Term IDRs reflects significant near-term uncertainty with respect to the bank's ability to fully comply with regulatory requirements within 2017, including for provisioning of the exposure to M2M, and hence the risk of further regulatory intervention. The bank's '5' Support Rating and 'No Floor' Support Rating Floor reflect Fitch's view that neither shareholder nor government support can be relied upon. RATING SENSITIVITIES APB's IDRs could be downgraded in case of further regulatory intervention or a breach of minimum regulatory capital ratios as a result of recognition of further impairment losses. APB's IDRs could stabilise at their current levels, or ultimately be upgraded, if the bank is able to rebuild its capital over time. The VR could be aligned with the Long-Term IDR when, in Fitch's view, the bank no longer has a material capital shortfall and has regained viability. The rating actions are as follows: APB Long-Term Foreign and Local Currency IDRs: 'CCC', maintained on RWN Short-Term Foreign Currency IDR: 'C', maintained on RWN Viability Rating: downgraded to 'f' from 'ccc'; off RWN Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Contact: Primary Analyst Ruslan Bulatov Associate Director +7 495 956 9982 Fitch Ratings CIS Limited 26 Valovaya Street, Moscow 115054 Secondary Analyst Maria Kuraeva Associate Director +7 495 956 9901 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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