RPT-Fitch Rates Sberbank (Switzerland) AG 'BBB'; Outlook Negative

Tue Apr 8, 2014 7:11am EDT

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April 8 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Sberbank (Switzerland) AG (SBS) a Long-term Issuer Default Rating (IDR) of 'BBB' with a Negative Outlook. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

SBS's Long-term IDR is aligned with that of its parent, Sberbank of Russia (SBRF; BBB/Negative/bbb), reflecting Fitch's view of the high probability that SBS would be supported by SBRF in case of need.

SBRF's Long-term IDRs are driven by the bank's standalone strength, reflected in its 'bbb' Viability Rating (VR), and are also underpinned by potential support from the Russian Federation (BBB/Negative). The Negative Outlook on SBRF's ratings mirrors that on the sovereign and reflects both a potential weakening of support and the potential for the VR, which is at the same level as the sovereign, to be downgraded due to risk of a weakening operating environment, as SBRF is exposed to the broader Russian economy.

Fitch's view on the probability of support for SBS is based on (i) SBS acting as an integral part of the group's servicing of its core clients, in particular commodity exporters, by providing trade finance services and participating in structured lending as well as client settlements; (ii) the track record, although still short, of support since acquisition, including equity and subordinated debt injected in 2013-1Q14; and (iii) high reputational risks for SBRF from any potential default of SBS given the parent's presence on international markets. The agency's view also takes into account SBS's small size (significantly less than 1% of the group's consolidated assets at end-2013), which limits the cost of any potential support, as well as common branding and the high level of operational integration between the entities.

Fitch has not assigned SBS a VR because of its significant reliance on the parent in terms of the business origination, strategic decision making and funding. SBS's main business at end-2013 was highly concentrated structured lending to some of the group's core customers. The loan book (equal to 62% of assets or about 1x equity) comprised fewer than ten exposures. SBS's participation allows deals to be structured under English or Swiss law. In 2014, SBS plans to also engage in commodity trade finance, which it anticipates should account for the bulk of the bank's revenue. In the longer term, the bank could also become a platform for the international global markets operations of the group. SBS is at present primarily equity-funded. Placements of group customers accounted for 91% of liabilities at end-2013.

RATING SENSITIVITIES

The Long-term IDR would likely change in tandem with the parent's Long-term IDR, and hence could be downgraded in case of a downgrade of SBRF. Downward pressure on SBS's ratings could also arise if there was a prolonged delay in the provision of necessary support, or if, in Fitch's view, the parent's propensity to provide support had weakened significantly. However, Fitch currently views such scenarios as unlikely.

The rating actions are as follows:

Long-term IDR assigned at 'BBB'; Outlook Negative

Short-term IDR assigned at 'F3'

Support Rating assigned at '2'

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