TEXT-Fitch affirms 2 small Russian banks at 'B'

June 22 - Fitch Ratings has affirmed Russian Universal Bank's (Rusuniversal)
and JSC SDM-Bank's (SDM) Long-term Issuer Default Ratings (IDRs) at 'B' with a
Stable Outlook. A full list of rating actions is at the end of this comment.

The banks' ratings reflect their small size by international standards resulting
in narrow franchises and sizeable balance sheet and industry concentrations.
Additional rating weaknesses stem from significant relationship-based lending
(particularly excessive for Rusuniversal) and, in the case of SDM, from modest
loss absorption capacity. At the same time, the banks' ratings factor in good
reported asset quality, comfortable liquidity, absence of wholesale debt and
strong profitability underpinned mainly by cheap and so far sticky funding in
both cases.

SDM's profitability is currently healthy with 2011 ROAE of 17% and is driven by
the high portion of current accounts in its funding profile (roughly 50% of
end-2011 customer funding) translating into low funding costs (4% in 2011).
Fitch admits that SDM has some competitive advantages in attracting such funding
and benefits from a long track record of relationships with its major clients.
At the same time the agency is concerned with longer term sustainability of
these funds, though they have proved resilient to liquidity squeezes.

SDM's loan book is highly concentrated with the 25 largest exposures equalling
60% of end-2011 loan book at 3x Fitch Core Capital. Fitch is particularly
concerned over the sizeable exposure to real estate, and property-rental
business equalled 1.1x of end-2011 Fitch Core Capital. As a moderate mitigant,
these loans are collateralised with already operational properties with low
LTVs. Some of these properties are currently rented by the bank. Fitch also
notes that some of these loans were issued to business partners of the bank's
majority shareholder.

SDM's capitalisation is only modest. Fitch estimates that at end-May 2012 the
bank was able to increase its loan impairment reserves by low 4% of gross loans
before the regulatory capital reduces to 10% which is very tight, noting high
loan concentrations. Moreover, management's current targets of 25%-30% annual
growth are higher than internal capital generation capacity of 20% while no
equity injections are planned for the near term, according to SDM's controlling
shareholder.

The bank's liquidity position is comfortable, underpinned by a significant cash
cushion (19% of end-2011 assets), and a sizable securities portfolio (27%
end-2011 assets or 5x of end-2010 equity), comprising predominantly Russian
sovereign or investment-grade rated quasi-sovereign exposure. However, as a
result of the latter, the bank is exposed to material market risk.

SDM is a small Moscow-based bank, focusing on corporate lending to medium-sized
businesses. The bank is majority owned and governed by its founding shareholder,
Anatoliy Landsman.

Rusuniversal is over-reliant on a single industry (i.e. defence), and is exposed
to a high level of relationship-based and related-party transactions. These
factors are balanced at this rating level by management expertise in the core
defence sector, a conservative risk appetite outside this core sector, strong
capitalisation and good asset quality.

The bank's small loan book reports zero NPLs at end-2012. The loan book is lumpy
with the top-10 borrowers representing 80% of total loans but loss absorption
capacity is comfortable (around 80%) due to a significant capital buffer, with
the regulatory capital ratio amounting to 65% at end-May 2012.

Rusuniversal's liquidity position is solid as the bank has no wholesale
borrowings and a sufficient cash cushion. That said, concentrated funding and
the high share of related parties bear additional risk. Potential large
withdrawals may stress liquidity and would threaten profitability, as 87% of
customer accounts are demand deposits. Should the bank need to replace them with
market funding it will erode the currently healthy margin.

Rusuniversal's core business is exposed to risk if defence industry companies
are forced to transfer financial flows to state-owned banks; another regulatory
risk stems from historically high, albeit decreasing, back-to-back lending.
However, the fact that the bank has successfully passed several audits by the
Central Bank of Russia gives moderate comfort.

The upside potential for the ratings of both banks is limited. Rusuniversal's
ratings may be downgraded if the bank is forced out of its niche in the defence
segment by regulatory or competitive pressure. Any shareholder decision to
withdraw a significant amount of capital would also be rating negative, as would
leveraging up of the business by expanding outside the bank's core expertise.
Downside pressure on SDM's ratings could be driven by significant deposit
outflow and/or asset quality deterioration should this result in significant
capital erosion.

The rating actions are as follows:

SDM
Long-term foreign currency IDR: affirmed at 'B', Outlook Stable
Long-term local currency IDR: affirmed at 'B', Outlook Stable
Viability rating: affirmed at 'b'
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
National Long-term rating: affirmed at 'BBB(rus)', Outlook Stable

Rusuniversal
Long-term foreign currency IDR: affirmed at 'B', Outlook Stable
Long-term local currency IDR: affirmed at 'B', Outlook Stable
Viability rating: affirmed at 'b'
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
National Long-term rating: affirmed at 'BBB-(rus)', Outlook Stable

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, "Global Financial Institutions Rating Criteria", dated
August 2011are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria