September 30, 2016 / 2:51 PM / a year ago

Fitch Affirms 3 Medium-sized Russian Banks

(The following statement was released by the rating agency) MOSCOW, September 30 (Fitch) Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDR) of Banca Intesa (BIR) at 'BBB-', Rosevrobank (REB) at 'BB-', and Peresvet Bank (Peresvet) at 'B+'. The Outlook on BIR is Negative, while those on REB and Peresvet are Stable. A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS IDRs The affirmation of BIR's IDRs reflects Fitch's view that BIR would likely be supported, in case of need, by its ultimate parent, Intesa Sanpaolo S.p.A. (ISP, BBB+/Stable). This view is based on the strategic role of BIR for further development of the Russian franchise of the group, the low cost of the potential support that might be required, common branding and potential reputational and contagion risks for the group in case of a subsidiary default. BIR's Long-Term Foreign Currency IDR is constrained by Russia's 'BBB-' Country Ceiling, and the Long-Term Local Currency IDR also takes into account country risks. The Negative Outlook on BIR's ratings reflects the Negative Outlook on Russia's sovereign rating. The IDRs and National Ratings of REB and Peresvet are driven by their intrinsic strength, as expressed by their Viability Ratings (VRs). VRs The affirmation of all three banks' VRs (REB at 'bb-', RIB and Peresvet at 'b+') reflects their generally stable financial metrics and only limited asset quality deterioration (more significant at BIR) amid the weak economic environment, and reasonable capital buffers. Negatively, the VRs reflect the banks' limited and fairly concentrated franchises and balance sheets. The one-notch higher VR of REB relative to the other two banks reflects its stronger and more resilient performance through the cycle. REB REB's asset quality remains resilient as expressed by a consistently low non-performing loans (NPLs, 90 days overdue) ratio (3.9% at end-1H16; 3.4% at end-2015) and moderate share of restructured loans (2.2%). These exposures in total were 1.5x covered by loan impairment reserves (LIRs). REB's 25-largest corporate exposures (equal to 1.3x Fitch Core Capital (FCC)) were mostly of limited risk because these are either (i) working-capital loans to cash- generative clients with long operational track records; or (ii) low-risk loans to government-related companies (about 20% of gross loans). REB's FCC ratio was a high 16% at end-1H16, up from 14% at end-2015, due to only limited lending growth and robust profitability (annualised ROAE of 32% in 1H16). Fitch estimates that at end-1H16 the bank's capital cushion was to sufficient to increase loan impairment reserves up to 24% of the portfolio without breaching minimum capital requirements. Loss absorption capacity is also strengthened by solid pre-impairment profit, which was equal to a large 13% of average loans in 1H16 (annualised). REB's funding is a strength due to a high share (38% of liabilities at end-1H16) of sticky and granular interest-free current accounts. The funding structure translates into REB's fairly low funding cost (4.4% in 1H16), providing the bank with a significant competitive edge for lending to better quality corporates while maintaining healthy margins. Funding concentration is low (the 20-largest clients accounted for a moderate 23% of end-1H16 total accounts) and proved to be rather stable through the past crises. Liquidity risk is also mitigated by REB's significant liquidity cushion, which covered more than 45% of total customer accounts at end-8M16. BIR BIR's NPLs ratio increased to 16.3% of gross loans at end-1H16 from 13.9% at end-2015 and 8.4% at end-2014. Restructured exposures made up a further 9% of loans at end-1H16. The deterioration occurred mainly due to further credit losses in the SME portfolio and several defaults among the largest borrowers. Provisioning is prudent, with NPLs being fully covered by reserves. The combined coverage of NPLs and restructured loans was a weaker 0.7x, but is still reasonable as most restructured exposures are performing well under renegotiated terms. Positively, the NPL origination ratio (calculated as the net increase in NPLs plus write-offs during the period, annualised) decreased to 2% in 1H16 from 7% in 2015, indicating improvement in asset quality following the strengthening of underwriting in 2H15 and the stabilisation of the Russian economy. Profitability is weak. Although the net interest margin remained a solid 7% in 1H16, BIR was close to break-even on a pre-impairment basis due to its cost-income ratio jumping to 79% in 1H16 (62% in 2015) as it deleveraged by 15%. Loan impairment charges decreased to 3% of gross loans in 1H16 (8% in 2015), but this still led to a negative ROAE of 7%. The FCC ratio remained reasonable, at 13.6% at end-1H16 (13.3% at end-2015), as the bottom line loss was offset by a decrease of risk-weighted assets. Regulatory capital ratios were also stable: at end-8M16 the Tier 1 ratio was 13.8% (6% required minimum) and total capital ratio was 18% (required minimum of 8%), potentially allowing the bank to reserve an extra 13% of gross loans (up to 34% totally) without breaching regulatory limits. As it has deleveraged, the bank has repaid a significant share of its parent funding (decreased to 25% of liabilities at end-1H16 from 44% at end-2014). BIR can tap RUB26bn of unused credit lines from the group (equal to 75% of BIR's deposits), if needed, which significantly mitigates liquidity risks. PERESVET Peresvet's reported NPLs were a low 0.6% at end-1H16, but real asset quality is potentially weaker. This is based on Fitch's review of the top 100 exposures, which revealed that many borrowers have some signs of affiliation among themselves or with the bank's shareholders or management, although not to the extent that these could formally be considered related parties for the purposes of IFRS or regulatory reporting. In Fitch's view the origination of these exposures raises some concerns about corporate governance in Peresvet. Fitch also believes that the actual concentration and related-party lending levels are higher than reported. As a moderate mitigating factor, according to management, most such borrowers are typically working under contracts with regional authorities or state-related companies, reducing credit risks. However, the longer-term sustainability of this business is questionable to Fitch. Fitch estimates that around RUB12bn (0.5x of end-1H16 FCC) of these loans are particularly high-risk, as the borrowers are mostly booking entities without any real assets, while the bank is the sole creditor. Around RUB2bn of these loans were reportedly cash-covered, which somewhat reduces the risk. Another area of risk is a RUB4bn (18% of FCC) fiduciary bank placement, which in reality represents a corporate exposure of the same nature as above. The bank's capital ratios remained reasonable (12.9% FCC ratio and regulatory Tier 1 ratio of 9.6% at end-1H16). Fitch estimates that Peresvet had the capacity to reserve an additional 5% of gross loans at end-1H16 before breaching regulatory capital adequacy requirements. Additional impairment losses, which made up 5.5% (annualised) of end-1H16 gross loans, could be absorbed through pre-impairment profit. However, capitalisation should be considered together with the concentrated and potentially high-risk loan book. Peresvet is funded mainly by customer accounts, which are predominantly relationship-based and highly concentrated, making liquidity sensitive to the behaviour of few large depositors. Refinancing risks are moderate at present, but may increase as the bank has been actively attracting wholesale funding (at 22% of liabilities at end-1H16, up from 9% at end-2014). Peresvet's liquidity buffer was rather tight, at 13% total liabilities at end-8M16. REB'S AND PERESVET'S SUPPORT RATINGS AND SUPPORT RATING FLOORS The '5' Support Ratings (SRs) of REB and Peresvet reflect Fitch's view that support from the banks' private shareholders cannot be relied upon. The SRs and Support Rating Floors of 'No Floor' also reflect that support from the Russian authorities cannot be relied upon due to the banks' narrow franchises and lack of systemic importance. BIR'S AND PEREVET'S SENIOR UNSECURED DEBT The senior unsecured debt (RUB-denominated local bonds) of these two banks is rated in line with their respective Long-Term IDRs, in line with Fitch's criteria for rating these instruments. RATING SENSITIVITIES BIR The Negative Outlook on BIR's ratings reflects the Negative Outlook on Russia's sovereign rating, and BIR will likely be downgraded if Russia's ratings are downgraded. BIR could also be downgraded if there is a sharp reduction in ISP's commitment to the subsidiary. VR upside is currently limited due to the recent deterioration in BIR's performance and asset quality metrics. Negative pressure could stem from further asset quality deterioration and a weakening of the capital position, if this is not rectified by fresh equity injections from the parent. REB AND PERESVET REB's and Peresvet's ratings could be downgraded if their asset quality deteriorates significantly and erodes the banks' profitability and capital positions. Further corporate governance weaknesses or risks arising from regulatory reviews in Peresevet may also lead to a downgrade. Upside for the banks' ratings is limited at present given their limited franchises and a weak outlook on the broader economy, but is more likely for REB should it manage to expand its franchise and demonstrate an extended track record of solid financial metrics. REB'S AND PERESVET'S SUPPORT RATINGS AND SUPPORT RATING FLOORS Fitch believes that any changes in the banks' SRs and SRFs are unlikely in the near term, although if any of the banks is sold to a higher-rated investor, it may result in an upgrade of its SR. PERESVET'S AND BIR'S SENIOR UNSECURED DEBT Senior unsecured debt ratings are sensitive to changes in the respective banks' IDRs. The rating actions are as follows: Banca Intesa Long-Term Foreign and Local Currency IDRs: affirmed at 'BBB-'; Outlook Negative Short-Term Foreign and Local Currency IDRs: affirmed at 'F3' National Long-term Rating: affirmed at 'AAA(rus)'; Outlook Stable Support Rating: affirmed at '2' Viability Rating: affirmed at 'b+' Senior debt long term rating: affirmed at 'BBB-' REB Long-Term Foreign and Local Currency IDRs: affirmed at 'BB-'; Outlooks Stable Short-Term Foreign Currency IDR: affirmed at 'B' Viability Rating: affirmed at 'bb-' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' National Long-term rating: affirmed at 'A+(rus)', Outlook Stable Peresvet Bank Long-Term Foreign and Local Currency IDRs: affirmed at 'B+'; Outlooks Stable Short-Term Foreign Currnecy IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'A-(rus)'; Outlook Stable Viability Rating: affirmed at 'b+' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt: affirmed at 'B+'/'A-(rus)'; Recovery Rating 'RR4' Contact: Primary Analysts Dmitri Vasiliev (REB, Peresvet) Director +7 495 956 5576 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow 115054 Anton Lopatin (BIR) Director +7 495 956 7096 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analysts Konstantin Alekseenko (BIR) Analyst +7 495 956 9901 Sergey Popov (REB) Associate Director +7 495 956 9981 Ilya Sarzhin (Peresvet) Analyst +7 495 956 9901 Committee Chairperson James Watson Managing Director +7 495 956 9901 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email:; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below