RPT-Fitch Revises OJSC MTS Bank's Outlook to Positive; Affirms at 'B+'

Thu Mar 13, 2014 7:43am EDT

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March 13 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has revised the Outlook on OJSC MTS Bank's (MTSB) Long-term Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'B+'. A full list of rating actions is at the end of this comment.

The revision of the Outlook reflects the revision of the Outlook on Sistema Joint Stock Financial Corp (Sistema; BB-/Positive), MTSB's controlling shareholder (see 'Fitch Revises Sistema's Outlook to Positive, Affirms at 'BB-' dated 26 February 2014 at www.fitchratings.com).

KEY RATING DRIVERS - IDRS, NATIONAL LONG-TERM RATING, SUPPORT RATING

MTSB's IDRs, National Long-term and Support Ratings factor in the likelihood of support the bank may receive, if needed, from its major owner, Sistema, and/or its subsidiaries.

In Fitch's view, Sistema's propensity to provide support is likely to be high, given the track record of capital support, including RUB5.1bn contributed in April 2013 by OJSC Mobile TeleSystems (MTS, BB+/Positive), a major operating subsidiary of Sistema; the brand association with MTS; and the significant risks of reputational and market access damage for the group in case of MTSB's default. Fitch considers that the cost of any potential support would be likely be moderate, relative to the size and financial ability of the broader group.

The one-notch difference between the ratings of Sistema and MTSB reflects the bank's weak performance to date and its limited strategic importance and synergy within the group.

RATING SENSITIVITIES - IDRS, NATIONAL LONG-TERM RATING, SUPPORT RATING

An upgrade of Sistema would likely result in an upgrade of MTSB's support-driven ratings. However, a prolonged period of weak performance at MTSB could negatively impact the group's long-term commitment to the bank's development, perhaps limiting the potential for rating upside. Failure of the parent to provide timely support, if needed, could result in a downgrade of the support-driven ratings.

KEY RATING DRIVERS - VIABILITY RATING (VR)

MTSB's 'b-' VR reflects (i) currently weak asset quality and further risks stemming from rapid (and therefore unseasoned) recent and planned growth of unsecured high margin retail lending; (ii) its moderate, but vulnerable capitalisation due to poor profitability; and (iii) the low transparency and potential regulatory risks related to subsidiary East-West United Bank. However, on the positive side the VR also considers MTSB's sticky funding and reasonable liquidity position.

For more details on VR drivers see "Fitch Affirms OJSC MTS Bank at 'B+'; Outlook Stable" dated 19 November 2013 at www.fitchratings.com.

RATING SENSITIVITIES - VR

Downward pressure on MTSB's VR could arise from material asset quality deterioration and/or capital pressure. The VR could mainly benefit from improvements in assets quality, resulting in stronger financial performance.

The rating actions are as follows:

Long-term IDR affirmed at 'B+'; Outlook revised to Positive

Short-term IDR affirmed at 'B'

National Long-term Rating affirmed at 'A-(rus)'; Outlook revised to Positive

Viability Rating affirmed at 'b-'

Support Rating affirmed at '4'

Senior unsecured debt affirmed: 'A-(rus)'

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