TEXT-S&P upgrades Russia's TransCreditBank to 'BBB/A-2'; otlk stable

Tue Dec 18, 2012 7:10am EST

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(The following statement was released by the rating agency)

Dec 18 -

Overview

-- In September 2012, JSC VTB Bank (VTB) increased its stake in TransCreditBank to 99.6% and plans to accelerate the bank's operational and strategic integration.

-- We think it likely that TransCreditBank will be legally merged into VTB's retail subsidiary by year-end 2013, and therefore now view the bank as a "core" subsidiary of VTB.

-- We are raising our long- and short-term ratings on TransCreditBank to 'BBB/A-2' from 'BBB-/A-3'.

-- The stable outlook mirrors that on VTB.

Rating Action

On Dec. 18, 2012, Standard & Poor's Ratings Services raised its long- and short-term counterparty credit ratings on TransCreditBank to 'BBB/A-2' from 'BBB-/A-3'. At the same time, we affirmed our 'ruAAA' Russia national scale rating on the bank. The outlook is stable.

Rationale

The upgrade reflects our view that TransCreditBank is now a "core" subsidiary of JSC VTB Bank (VTB; BBB/Stable/A-2, ruAAA). Previously, we viewed TransCreditBank as a "highly strategic" subsidiary. In line with our criteria, we now equalize our ratings on TransCreditBank on with those on its parent, reflecting the almost certain likelihood that VTB would support TransCreditBank if needed. The ratings on the two entities will move in tandem as long as TransCreditBank maintains its "core" status.

VTB acquired TransCreditBank, one of Russia's largest 15 banks in terms of assets, in 2010 and has since been gradually integrating it within its operations and risk framework. VTB raised its stake in TransCreditBank to 99.6% from 77.8% in September 2012 by purchasing the remaining stakes held by JSC Russian Railways (BBB/Stable/A-2), the historic owner of TransCreditBank. This move is the last in a series of stake purchases initiated in 2010.

We expect the operational and strategic integration of TransCreditBank to accelerate in 2013, culminating with the legal merger, expected in November 2013, of TransCreditBank within VTB 24 (not rated), the retail arm of VTB. We understand that TransCreditBanks's corporate banking activities will also be transferred to VTB. From a business perspective, TransCreditBank will start distributing VTB's banking products across its own network, even before the merger, which will increase the synergies between both entities.

In our view, TransCreditBank operates in business lines that are integral to VTB's strategy and strengthen the group's commercial banking franchise, notably thanks to its historically privileged relationships with Russian Railways and its employees. In turn, VTB has already shown its commitment to TranscreditBank through a Russian ruble (RUB)7.5 billion Tier 1 capital increase in February 2012, long-term subordinated loans, and ongoing funding and liquidity support. TransCreditBank accounts for a significant portion of VTB's balance sheet, comprising about 9% of total assets and close to 10% of total equity at midyear 2012. Its market reputation has been closely linked to that of VTB since its acquisition.

Given the strengthened operational integration and planned merger with VTB 24, we do not think it necessary to continue reviewing TransCreditBank's stand-alone creditworthiness, in line with what we typically do for most "core" subsidiaries.

Outlook

The outlook is stable and reflects that on VTB. In turn, the outlook on VTB mirrors that on Russia (foreign currency BBB/Stable/A-2; local currency BBB+/Stable/A-2; Russia national scale 'ruAAA'), the bank's main owner. Any rating action or outlook revision on VTB will automatically lead to a similar action on TransCreditBank.

Related Criteria And Research

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- Full analysis on the Russian Federation, July 27, 2012

-- Full analysis on JSC VTB Bank, June 15, 2012

-- Full analysis on TransCreditBank, Nov. 2, 2012

-- Banking Industry Country Risk Assessment: Russia, March 19, 2012

-- Capital And Funding Constraints Hold Back Russian Banks' Resurgence, Dec. 3, 2012

Ratings List

Upgraded

To From

TransCreditBank

Counterparty Credit Rating BBB/Stable/A-2 BBB-/Stable/A-3

Certificate Of Deposit BBB BBB-

Senior Unsecured BBB BBB-

Ratings Affirmed

TransCreditBank

Russia National Scale ruAAA/--/--

Senior Unsecured ruAAA

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