RPT-Fitch Maintains Evrofinance Mosnarbank on Rating Watch Positive
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Dec 6 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings is maintaining Evrofinance Mosnarbank's (EMB) ratings, including its Long-term Issuer Default Ratings (IDRs) of 'B+' on Rating Watch Positive (RWP). A full list of rating actions is provided at the end of this commentary.
KEY RATING DRIVERS
The RWP on EMB's ratings continues to reflect the bank's planned transformation into an international financial institution. An intergovernmental agreement (IA), signed by the Russian Federation (BBB/Stable) and Venezuela (B+/Negative) in December 2011 but yet to be ratified, envisages Russia's acquisition of a 50% stake in EMB from two Russian state-controlled banks, and Venezuela's acquisition of the remaining 50% stake from the National Development Fund of Venezuela.
EMB's current ratings reflect the bank's limited and concentrated franchise, volatile funding base and moderate performance but also its currently solid capitalisation, ample liquidity and strong asset quality.
Positively for EMB's loan book risk profile, the bank's most risky large construction/project finance exposures (around 25% of Fitch Core Capital (FCC) at end-3Q13) were repaid in 4Q13. As previously, EMB's loan book remained highly concentrated, with the 20 largest exposures accounting for 91% of the loan book or 83% of FCC at end-3Q13. At end-3Q13, the FCC ratio was a solid 39%. EMB's lumpy funding base is dominated by short-term accounts from a limited number of Venezuelan entities. These, however, are prudently covered with liquid assets. High funding concentrations and balance sheet volatility reflect EMB's focus on trade finance and settlement operations.
EMB's current Support Rating of '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that support from the bank's shareholders and/or the Russian authorities cannot be relied upon, pending the planned change in the bank's status.
Fitch expects to resolve the RWP upon completion of EMB's transformation, which will follow ratification of the IA by national parliaments. However, given the slow progress to date, the change in the bank's status may still be delayed for a considerable period of time, in Fitch's view.
Following the change in status, Fitch will likely upgrade EMB's Long-term IDRs to the 'BB' category. The level of the ratings will depend, amongst other things, on the ratings of the two main shareholders, Fitch's assessment of the importance of the bank's policy role in servicing joint Russian-Venezuelan projects, and the extent of the shareholders' capital commitments to the bank. Fitch would withdraw EMB's VR following the bank's transition into a supranational institution.
Upside potential for the VR is currently limited given the bank's narrow and concentrated franchise and moderate performance. A sharp increase in leverage or asset quality deterioration could result in downward pressure on the VR.
The rating actions are as follows:
Long-term foreign and local currency IDRs: 'B+'; maintained on RWP
Short-term foreign currency IDR: affirmed at 'B'
National Long-Term Rating: 'A-(rus)'; maintained on RWP
Viability Rating: affirmed at 'b+'
Support Rating: '5', maintained on RWP
Support Rating Floor: 'No Floor', maintained on RWP
Senior unsecured debt: assigned at 'B+(EXP)'/RWP; Recovery Rating 'RR4(EXP)'; assigned at 'A-(rus)(EXP)'/RWP
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