TEXT - Fitch revises JSC VTB Bank outlook to negative

Wed Jan 16, 2013 9:38am EST

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(The following statement was released by the rating agency)
    Jan 16 - Fitch Ratings has revised the Outlook on of JSC VTB Bank and five
of its subsidiaries to Negative from Stable and affirmed the 'BBB' Long-term
Issuer Default Ratings (IDR). At the same time, the agency has affirmed the
'BBB' Long-term IDRs of Sberbank - Savings Bank of the Russian Federation
(Sberbank) and Vnesheconombank (VEB) with Stable Outlooks. A full list of rating
actions is at the end of this comment.  

RATING ACTION RATIONALE - VTB's IDRs

The Negative Outlook on VTB reflects the planned privatisation of the bank, 
which, coupled with its more limited policy role (compared to VEB) and somewhat 
lower systemic importance (relative to Sberbank), are in Fitch's view likely to 
result in a marginally lower probability of government support over the medium 
term. The revision of the Outlook also takes into account possible support 
'fatigue' with respect to VTB following substantial assistance provided to the 
bank in recent years, in particular following the acquisition of Bank of Moscow 
('BBB'/Negative) in 2011-2012, and the tail risk of significant losses at the 
bank given weaknesses in corporate governance and sometimes aggressive risk 
management.

The latest version of the Russian government's privatisation programme, approved
in June 2012, provides for the reduction in the government's stake in VTB to 50%
plus one share (from the current 75.5%) by end-2013 and a full exit by 2016. In 
Fitch's view, it will probably be challenging to meet the former target this 
year given current market conditions, and the agency believes that the state may
still retain a minority stake, rather than fully exit, by 2016. Nevertheless, 
the agency believes the government now has a firmer intention than previously to
proceed with the bank's privatisation, as market conditions allow.

RATING ACTION RATIONALE AND DRIVERS - SBERBANK'S, VTB'S AND VEB'S IDRS, SUPPORT 
RATINGS, SUPPORT RATING FLOORS, DEBT RATINGS AND NATIONAL RATINGS

The 'BBB' Long-term IDRs of Sberbank, VEB and VTB continue to be underpinned by 
Fitch's view of the high probability of support from the Russian authorities, in
case of need, given the current majority state ownership of the three banks 
(50%+1 share in the case of Sberbank; 100% for VEB); the systemic importance of 
Sberbank and VTB, and VEB's policy role as a development bank; the track record 
of capital and funding support for the three institutions; and the close 
association between the authorities and the banks (in particular at VEB).

Sberbank's 'BBB' Support Rating Floor is unlikely to come under downward 
pressure in the medium term given the absence, at present, of any confirmed 
plans to reduce the Central Bank's stake to a minority shareholding, and 
Sberbank's exceptionally high systemic importance. Furthermore, Sberbank's 
Long-term IDR is currently driven by Fitch's view of the bank's standalone 
strength, reflected in its 'bbb' Viability Rating (VR), and so would not come 
under downward pressure even if the Support Rating Floor was lowered. 

RATING SENSITIVITIES - SBERBANK'S, VTB'S AND VEB'S IDRS, SUPPORT RATINGS, 
SUPPORT RATING FLOORS, DEBT RATINGS AND NATIONAL RATINGS

VTB would likely be downgraded by one notch to 'BBB-' if the government makes 
tangible and significant progress with the privatisation of the bank, confirming
the probability of its stake falling below 50%. VTB's ratings could also come 
under downward pressure if the Russian authorities fail to provide timely 
support to the bank in case of need, or make any clear statements concerning 
burden sharing with creditors in case of bank failures.

The Long-term IDRs and debt ratings of VEB and VTB would also be downgraded if 
the Russian Federation ('BBB'/Stable) was downgraded. A downgrade of Russia 
would also likely result in a downgrade of Sberbank as it would probably 
negatively impact both the bank's 'BBB' SRF and its 'bbb' VR.

An upgrade of Russia to 'BBB+' would be likely to result in a one-notch upgrade 
of VEB and Sberbank. A sovereign upgrade could also result in VTB's ratings 
stabilising at their current level.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - SBERBANK'S VIABILITY RATING

The affirmation of Sberbank's VR reflects its dominant market position, granular
and stable deposit base and strong liquidity. It also takes into account the 
bank's strong performance, reasonable and relatively stable post crisis asset 
quality and adequate, albeit reduced due to acquisitions and rapid growth, 
capitalisation. Fitch also regards the bank's credit underwriting and quality of
its largest exposures to be generally better than at other Russian state-owned 
banks, although risk management weaknesses cannot be ruled out.

An upgrade of Sberbank's VR and Long-term IDR would probably require an upgrade 
of the Russian Federation ('BBB'/Stable), improvements in the Russian operating 
environment and continued strong financial metrics of the bank. A downgrade of 
Russia's ratings could also result in a downgrade of Sberbank's VR.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - VTB'S VIABILITY RATING

The affirmation of VTB's VR reflects only minor changes in its stand-alone risk 
profile since the last rating action in July 2012. The bank's main issues remain
its moderate capitalisation (Fitch gives zero equity credit to recently placed 
perpetual bonds, although this moderately improved regulatory and Basel ratios);
concerns about market risk appetite/tolerance, albeit management has made 
certain progress in reducing proprietary equities positions; weak quality of 
earnings, and the still high level of credit risk in the bank's corporate loan 
book and other asset exposures. At the same time, the rating also considers the 
bank's broad franchise, currently adequate liquidity and moderate refinancing 
risk, and the consistently solid performance of the bank's retail subsidiary, 
VTB24.

VTB's VR could be upgraded if capitalisation and performance strengthens and 
asset quality improves. However, the rating could be downgraded if there were 
further credit or market driven losses resulting in increased pressure on the 
bank's solvency.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - SUBSIDIARY IDRS, SUPPORT 
RATINGS, DEBT RATINGS, NATIONAL RATINGS

The ratings of four VTB bank subsidiaries - VTB24, Bank of Moscow (BoM), VTB 
Capital plc. (VTBC) and VTB Bank (Austria) (VTBA) - and of the leasing 
subsidiaries of all three banks - Sberbank Leasing, VTB Leasing and VEB Leasing 
- are equalised with their parents, reflecting their ownership, generally high 
integration, the track records of support, common branding (with the exception 
of BoM) and generally moderate/small size relative to parent institutions.

The Negative Outlooks on the Long-term IDRs of VTB's subsidiaries reflect that 
on the parent. Any changes in parent bank IDRs would likely also be reflected in
the IDRs of the subsidiaries.

RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - VTB24'S VIABILITY RATING

VTB24's VR is underpinned by its strong retail franchise, robust profitability, 
strong liquidity and very limited debt. However, VTB24's VR is closely linked to
that of its weaker parent given the relatively high degree of fungibility of 
capital and liquidity between the two entities.

An upgrade of VTB24's VR would therefore likely require an upgrade of VTB's VR, 
as well as continued strong performance of VTB24's retail business. A downgrade 
of VTB's VR could result in a downgrade of VTB24's VR.

The rating actions are as follows:

VTB:

Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlooks revised 
to Negative from Stable

Short-term IDR: affirmed at 'F3'

Support Rating: affirmed at '2'

Support Rating Floor: affirmed at 'BBB'

National Long-term Rating: affirmed at 'AAA(rus)', Outlook revised to Negative 
from Stable

Senior unsecured debt long-term rating: affirmed at 'BBB', 'AAA(rus)'

Senior unsecured debt short-term rating: affirmed at 'F3'

Subordinated debt: affirmed at 'BBB-'

Viability Rating: affirmed at 'bb-'

VTB24:

Long-term IDR: affirmed at 'BBB'; Outlook revised to Negative from Stable

Short-term IDR: affirmed at 'F3'

Support Rating: affirmed at '2'

National Long-term Rating: affirmed at 'AAA(rus)', Outlook revised to Negative 
from Stable

Senior unsecured debt long-term rating: affirmed at 'BBB', 'AAA(rus)'

Senior unsecured debt short-term rating: affirmed at 'F3'

Viability Rating: affirmed at 'bb'

Bank of Moscow (BOM):

Long-term IDR: affirmed at 'BBB'; Outlook revised to Negative from Stable

Short-term IDR: affirmed at 'F3'

Support Rating: affirmed at '2'

National Long-term Rating: affirmed at 'AAA(rus)', Outlook revised to Negative 
from Stable

Senior unsecured debt long-term rating: affirmed at 'BBB', 'AAA(rus)'

Subordinated debt rating: affirmed at 'BBB-' 

Viability Rating: 'bb-' unaffected

VTB Capital plc (VTBC):

Long-term foreign currency IDR: affirmed at 'BBB'; Outlook revised to Negative 
from Stable

Short-term foreign currency IDR: affirmed at 'F3' 

Support Rating: affirmed at '2'

Senior unsecured debt: affirmed at 'BBB'

VTB Bank (Austria) (VTBA):

Long-term foreign currency IDR: affirmed at 'BBB'; Outlook revised to Negative 
from Stable

Short-term foreign currency IDR: affirmed at 'F3' 

Support Rating: affirmed at '2'

VTB Leasing

Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlooks revised 
to Negative from Stable 

Short-term foreign and local currency IDRs: affirmed at 'F3' 

National Long-term Rating: affirmed at 'AAA(rus)', Outlook revised to Negative 
from Stable

Support Rating: affirmed at '2'

Senior unsecured debt: affirmed at 'BBB'

Sberbank:

Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Stable

Short-term foreign currency IDR: affirmed at 'F3'

Support Rating: affirmed at '2'

Support Rating Floor: affirmed at 'BBB' 

Viability Rating: affirmed at 'bbb'

Senior unsecured debt long-term rating: affirmed at 'BBB'

Senior unsecured debt short-term rating: affirmed at 'F3'

Subordinated debt: affirmed at 'BBB-'

Sberbank Leasing:

Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Stable

Short-term foreign currency IDR: affirmed at 'F3'

National Long-term Rating: affirmed at 'AAA(rus)', Outlook Stable

Long-term local currency IDR: affirmed at 'BBB'; Outlook Stable

Support Rating: affirmed at '2'

Vnesheconombank (VEB):

Long-term foreign currency IDR: affirmed at 'BBB'; Outlook Stable

Short-term foreign currency IDR: affirmed at 'F3'

Long-term local currency IDR: affirmed at 'BBB'; Outlook Stable

Support Rating: affirmed at '2'

Support Rating Floor: affirmed at 'BBB' 

Senior unsecured debt: affirmed at 'BBB'

VEB-Leasing

Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlooks Stable 

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'

Senior unsecured debt: affirmed at 'BBB'; AAA(rus)

 (Caryn Trokie, New York Ratings Unit)
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