December 21, 2017 / 12:50 PM / a year ago

Fitch Rates Interstate Bank 'BB'; Outlook Positive

(The following statement was released by the rating agency) LONDON, December 21 (Fitch) Fitch Ratings has assigned Interstate Bank a Long-Term Issuer Default Rating of 'BB' with a Positive Outlook. KEY RATING DRIVERS The rating and Positive Outlook reflect the following key rating drivers: Interstate Bank is rated by Fitch as a Supranational Administrative Body (SAB) and, in line with our published criteria, the rating is support-driven and takes into account the average rating of key shareholders (Russia: BBB-/Positive). A two-notch downward adjustment from Russia's rating is applied to reflect our assessment of the propensity of the key shareholder to provide support. Interstate Bank, located in Moscow, was founded in January 1993 by 10 member states of the Commonwealth of Independent States (CIS): Armenia (B+/Positive), Belarus (B-/Positive), Kazakhstan (BBB/Stable), Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine (B-/Stable). Uzbekistan, however, left the bank in 2012, withdrawing its capital and all operational involvement. Interstate Bank is an international cross-border settlement institution operating in the CIS and the Eurasian Economic Union. The bank receives deposits, in roubles, from regional central banks and international organisations and, at any given point, is then asked to process payments from its depositors to their counterparties. All deposits are held 'on demand'. About 43% of the bank's total assets are held as very short-term money market deposits, mostly overnight with interest rates prevailing on the interbank market, currently at between 7.6% - 8.35%, as the bank needs highly liquid assets to match its highly liquid liabilities. These short-term deposits are held in roubles with a credit quality ranging from 'BBB' to 'B-'. Interstate Bank has no loans, apart from staff loans which represent only 0.1% of the bank's assets. There are currently no guarantees issued by the bank, it does not provide trade financing, does not take part in any co-financing, and is not involved in concessional lending, project finance nor loans to SMEs. The bank's business model is not expected to change in the foreseeable future. As such, Interstate Bank's rating is anchored by Fitch's assessment of support rather than the bank's intrinsic profile. As Interstate Bank has no callable capital and no debt, in line with its criteria Fitch bases its support assessment on the average rating of key shareholders. Interstate Bank has one key shareholder, Russia, which owns 50% of the bank's capital, making Russia's rating the foundation of Interstate Bank's rating. The rating is then notched down twice to reflect partly the relative ease with which member states can withdraw from the bank, as evidenced by Uzbekistan's departure in 2012. Withdrawal from the bank incurs no penalties or sanctions and a departing member's share of paid-in capital would be repaid to them following completion of the required six months' notice period. The notching also factors in the small size of the bank relative to the region's economy and the limited role the bank plays in the financing of key projects in member states. Although Interstate Bank facilitates forum discussions for CIS / national banks that are supported by members, in Fitch's view this role is not relevant to our assessment of support. RATING SENSITIVITIES The main factors that could, individually or collectively, lead to an upgrade are: - An upgrade of the Russian sovereign rating, which would reflect an improvement of capacity to support. - A positive change to our assessment of Russia's propensity to support the bank. Conversely, the main factors that could, individually or collectively, lead to a negative rating action, are: -A downgrade of the Russian sovereign rating or revision of its Outlook to Stable or Negative. -A negative change to our assessment of Russia's propensity to support the bank. KEY ASSUMPTIONS The ratings and Outlook are sensitive to a number of assumptions: - Russia continues to own at least 50% of Interstate Bank and that this share is not diluted; - No deviation from the current strategy of Interstate Bank; - Risk management policies will remain unchanged and no breach is expected. Contact: Primary Analyst Nicholas Perry Analyst +44 203 530 1795 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Vincent Martin Director +44 203 530 1828 Committee Chairperson Tony Stringer Managing Director +44 203 530 1219 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Sources of information: The sources of information used to assess these ratings were Interstate Bank's financial statements and other information provided by Interstate Bank. Additional information is available on Applicable Criteria Supranationals Rating Criteria (pub. 18 May 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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