RPT-Fitch Affirms Ak Bars Bank at 'BB-'

Mon Aug 19, 2013 7:41am EDT

Related Topics

(Repeat for additional subscribers)

Aug 19 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Ak Bars Bank's (ABB) Long-term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook. The affirmation follows the upgrade of the Republic of Tatarstan (RT) to 'BBB' from 'BBB-' on 1 August 2013. A full list of rating actions is at the end of this comment.

KEY RATING DRIVERS: IDRS, SENIOR DEBT RATING, NATIONAL RATING AND SUPPORT RATING

ABB Long-Term IDRs, senior debt, National and Support Ratings reflect Fitch's view of the moderate probability of support from RT (BBB/Stable). This is based on (i) ABB's considerable market shares in the region, (ii) its large deposit base, (iii) RT's ultimate control over the bank, (iv) the close association between the local authorities and the bank and (v) significant non-equity funding made available to ABB by the local government and government-related entities.

However, ABB's ratings remain constrained by (i) RT's indirect and somewhat non-transparent control over ABB; (ii) some concerns over RT's financial flexibility and ability to provide timely capital support in all circumstances; and (iii) significant corporate governance concerns, as the bank is still heavily exposed to entities which Fitch believes to be connected to the local administration. Accordingly, ABB's ratings have been affirmed, notwithstanding the upgrade of RT.

KEY RATING DRIVERS: VR

The affirmation of ABB's VR reflects its high-risk corporate lending, significant exposure to investment property and other non-core assets, which materially exceeds the bank's loss-absorption capacity; and poor pre-impairment profitability. The VR also reflects ABB's reasonably performing retail loan book, stable deposit funding and reasonable liquidity.

For details see "Fitch Affirms Ak Bars Bank at 'BB-'; Revises Outlook to Stable" dated June 3, 2013 on www.fitchratings.com.

RATING SENSITIVITIES: IDRS, NATIONAL LONG-TERM RATING, SENIOR DEBT RATING AND SUPPORT RATING

Downward pressure on ABB's IDRs, senior debt, National and Support Ratings could arise if there was any major weakening in the relationship between RT and the bank, for example, as a result of changes in any key senior regional officials or pressure from the federal authorities for RT to divest its stake in the bank (although neither of these are currently expected by Fitch).

Upside potential for ABB's support-driven ratings may emerge if (i) its shareholding structure is streamlined, resulting in a majority stake being held by the RT or an RT-controlled entity; and/or (ii) ABB's related party business decreases and corporate governance improves, thereby reducing the risk of support for the bank being less politically acceptable or too costly.

RATING SENSITIVITIES: VR

Downward pressure on ABB's VR could stem from a further marked deterioration in its performance and asset quality, should these erode the bank's capital, or renewed high-risk lending. An upgrade of the VR would require further progress with work outs of the bank's problem assets and maintenance of at least moderately positive pre-impairment profitability.

KEY RATING DRIVERS AND SENSITIVITIES: SUBORDINATED DEBT

ABB's subordinated debt is rated two notches lower than its Long-term IDR, of which one notch reflects incremental non-performance risk (higher probability of default on subordinated debt than on senior obligations) and one notch reflects potential loss severity (lower recoveries in case of default). Any changes to the bank's Long-term IDR would likely impact the rating of the subordinated debt.

The rating actions are as follows:

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

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

National Long-term rating: affirmed at 'A+(rus)'; Outlook Stable

Viability Rating: affirmed at 'b-'

Support Rating: affirmed at '3'

Senior unsecured debt: affirmed at 'BB-'

Senior unsecured debt National rating: affirmed at 'A+(rus)'

AK BARS Luxembourg S.A

Senior unsecured debt: affirmed at 'BB-'

Subordinated debt: affirmed at 'B'

FILED UNDER: