RPT-Fitch rates JSC Asian-Pacific Bank at 'B+', outlook stable
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Aug 23 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Russia-based JSC Asian-Pacific Bank (APB) a Long-term Issuer Default Rating (IDR) of 'B+' with a Stable Outlook. A full list of rating actions is at the end of this comment.
KEY RATING DRIVERS - IDRS, VR, NATIONAL LONG-TERM RATING
APB's Long-term IDRs are based on its Viability Rating (VR) of 'b+' reflecting the risks stemming from the bank's rapid double-digit growth in the vulnerable consumer finance and SME lending markets, and only moderate capitalisation.
However, the ratings consider positively the bank's solid pre-impairment profitability, reasonable diversification and reported asset quality metrics, the currently sound liquidity, and solid position in its core Russian Far East and Siberian regions.
Fitch views the quality of the bank's main product - the unsecured consumer (cash) loans comprising 59% of gross loans at end-Q113 - as reasonable given the 6.3% level of credit losses in 2012 (annualised 9.6% in Q113) being in line with the market. Fitch is generally concerned about the growing retail borrower indebtedness in Russia, which could result in higher loss rates in the future.
However, the agency estimates that given APB's current 26% level of net interest margin for this product the break-even loss rate is about 19%.
The quality of the corporate and SME book (31% of end-Q113's gross loans) benefits from the management's extended experience on the particular regional market, a rather limited concentration of the single-name exposures, and mostly short and medium tenors of loans. The bank's reported non-performing loans (NPLs; 90 days overdue) and restructured loans accounted for, respectively, 1.9% and 0.5% of gross corporate and SME loans at end-Q113, with those being 91% covered by the loan impairment reserves (LIRs).
The pre-impairment profit was around 7% of the average total assets in Q113-2010 and the average operating profits (after deduction of loan impairment charges) was around 6% for that period. Given the gradual consumer finance market saturation APB might, however, have to adjust its pricing policies and underwriting standards to tackle the market slowdown, hence, potentially leading to a moderate weakening of its profitability in the medium term.
APB's liquidity position is underpinned by its solid liquidity buffer (cash, bank deposits and securities repoable with the central bank) sufficient to cover 33% of APB's total deposits at end-H113, as well as the liquid loan book with monthly repayments equalling a further 7% of deposits.
Capital cushion is moderate for a consumer finance bank with Fitch Core Capital at 15% of the risk-weighted assets at end-Q113. The regulatory capital ratio is somewhat lower at around 12% at end-H113 due to higher statutory reserves. The shareholders are planning to inject RUB2bn (17% of end-Q113's IFRS equity) of additional equity capital by end-2013, although this is likely to be consumed quickly by rapid growth.
KEY RATING DRIVERS - SUPPORT RATING, SUPPORT RATING FLOOR
The Support Rating '5' and Support Rating Floor at 'No Floor' reflect that Fitch does not factor external support from the bank's shareholders and the Russian state into the bank's ratings. The latter reflects APB's low systemic importance.
RATING SENSITIVITIES - IDRS, VR, NATIONAL LONG-TERM RATING, SUPPORT RATING, SUPPORT RATING FLOOR
The IDRs, VR and the National Long-Term Rating could be downgraded as a result of marked asset quality deterioration and erosion of capitalisation. An upgrade of these ratings would require a maturing of the bank's franchise and a proven ability to withstand challenges of the saturating consumer finance market. Support Rating could be upgraded if the bank is acquired by a financially stronger shareholder.
The rating actions are as follows:
Long-term foreign currency IDR assigned at 'B+'; Outlook Stable
Short-term foreign currency IDR assigned at 'B'
Long-Term local currency IDR assigned at 'B+'; Outlook Stable
National Long-Term Rating assigned at 'A-(rus)'; Outlook Stable
Viability Rating assigned at 'b+'
Support Rating assigned at '5'
Support Rating Floor assigned at 'NF'
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