TEXT-Fitch rates VTB Bank (France) 'BBB',outlook negative
(The following statement was released by the rating agency)
Jan 29 - Fitch Ratings has assigned VTB Bank (France) (VTBF) a Long-term Issuer Default Rating (IDR) of 'BBB', a Short-term IDR of 'F3' and a Support Rating of '2'. The Outlook on the Long-term IDR is Negative.
RATING ACTION RATIONALE AND DRIVERS
VTBF's IDRs are aligned with those of its ultimate parent, Russia-based Bank VTB (IDR: 'BBB'/Negative), reflecting Fitch's opinion that there would be a high probability of support from VTB, if required. This opinion factors in VTBF's high integration with the parent, its narrow independent franchise, the track record of support to date, common branding and VTBF's relatively small size compared to VTB's balance sheet.
The taxation treatment of VTBF's profits also provides an incentive for VTB to maintain the subsidiary as part of the group. Profit distributed to reconstitute subordinated debt owed by VTBF to VTB is not subject to taxation until VTBF fully reconstitutes the original amount of the facility (to EUR906m from EUR700m at end-Q312).
Fitch has not assigned a Viability Rating (which reflects a bank's standalone credit strength) to VTBF, due to its limited independent franchise and significant reliance on the parent for business origination and funding. VTBF's corporate loan book, investment portfolio and interbank lending are dominated by obligors from VTB's home market. The loan portfolio is very concentrated (the top 20 borrowers accounted for 70% of loans, an amount equal to 3.9x Tier 1 capital, at end-Q312), comprising mainly long-term loans to VTB's large corporate customers. Three quarters of VTBF's funding, including equity, at the same date was sourced from the group.
RATING ACTION SENSITIVITIES
VTBF's IDRs are likely to change in tandem with those of its ultimate parent, Bank VTB. The latter currently has a Negative Outlook, reflecting the planned privatisation of the bank, and Fitch's opinion that this will result in a moderately reduced propensity of state support. A downgrade of VTB's IDRs will result in similar rating action for VTBF.
VTBF's IDRs could also be upgraded or downgraded in case VTB sells the bank, depending on the strength of the new owner. However, Fitch views the sale of the bank as unlikely in the near term.
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