(The following statement was released by the rating agency)
Jan 15 - Fitch Ratings has maintained National Reserve Bank’s (NRB) ‘B-’ Long-term Issuer Default Ratings (IDR) on Rating Watch Negative (RWN). A full list of rating actions is provided at the end of this commentary.
RATING ACTION RATIONALE AND DRIVERS - IDRs, VR, NATIONAL RATING
NRB’s ratings and the RWN continue to reflect high uncertainty and risks associated with the on-going wind-down of the bank’s business. The RWN also reflects the non-payment, to date, of accrued interest on a subordinated loan, the principal of which was repaid in January 2013. At the same time, the agency recognises the significant progress the bank has made since end-Q312 in winding down its loan book, generating liquidity and repaying liabilities.
Between end-Q312 and end-2012, NRB’s net loan book contracted to RUB4.8bn from RUB12.7bn as a result of loan sales, repayments and set-offs of related party exposures with corresponding liabilities. During the same period, the bank’s liquid assets (cash and short-term bank placements) increased to RUB5.7bn (RUB3.6bn, adjusted for the RUB2.1bn subordinated loan repayment in early January) from RUB2.6bn.
At end-2012, the bank still had RUB14.4bn of liabilities (adjusted for the loan repayment), of which Fitch estimates approximately RUB10bn were to non-related parties. The latter includes about RUB5bn of customer accounts and RUB3.1bn of funding secured by pledges of securities. Full repayment of NRB’s liabilities will require further generation of cash from the loan book and fixed assets and/or a readiness to sell down investments held in favour of the bank’s owner, Alexander Lebedev, in particular shares in OJSC Aeroflot (‘BB+'/Stable), OAO Gazprom (‘BBB’/Stable) and leasing company Ilyushin Finance. These shares on the bank’s balance sheet, pledged against funding and held in a mutual fund controlled by the bank, totalled RUB9.5bn at end-2012.
In January 2013, NRB repaid a RUB2.1bn subordinated loan, but is currently negotiating the payment of RUB0.8bn of accrued interest. In Fitch’s view, the non-payment is not an indication of heightened liquidity stress given the liquid assets currently on the balance sheet. However, a prolonged failure to meet this obligation, or any indication that the terms of settlement may be coercive for the lender, would be viewed negatively by Fitch.
RATING SENSITIVITIES - IDRs, VR, NATIONAL RATING
The ratings could be downgraded if the bank’s liquidity tightens again, threatening its ability to further pay down its third-party obligations. However, the ratings could stabilise at their current level if NRB accumulates a more comfortable level of liquidity relative to its remaining liabilities, and settles the outstanding accrued interest on the subordinated loan.
RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The affirmation of the Support Rating at ‘5’ and the Support Rating Floor at ‘No Floor’ reflect the bank’s low systemic importance and high uncertainty with regard to the provision of support by either the shareholder or the Russian authorities.
The rating actions are as follows:
Long-Term Issuer Default Rating: ‘B-'; RWN maintained
Short-Term Issuer Default Rating: ‘B’; RWN maintained
Local currency Long-Term IDR: ‘B-'; RWN maintained
National Long-Term Rating: ‘BB-'; RWN maintained
Viability Rating: ‘b-'; RWN maintained
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘No Floor’