(The following statement was released by the rating agency)
MOSCOW/LONDON, November 19 (Fitch) Fitch Ratings has affirmed
OJSC MTS Bank's
(MTSB) Long-term Issuer Default Rating (IDR) at 'B+' with a
Stable Outlook. A
full list of rating actions is at the end of this comment.
KEY RATING DRIVERS - IDRS, NATIONAL LONG-TERM RATING, SUPPORT
MTSB's IDRs, and National Long-term and Support Ratings reflect
Fitch's view of
the limited probability of support that the bank may receive, if
its parent, Sistema Joint Stock Financial Corp. (Sistema;
BB-/Stable) and/or its
In assessing Sistema's propensity to provide support, Fitch
considers its full
ownership, the track record of capital support, including
in April 2013 by OJSC Mobile TeleSystems (MTS, BB+), a major
subsidiary of Sistema, the brand association; and the
significant risks of
reputational and market access damage for the group in case of
Fitch also considers the cost of any potential support as
moderate relatively to
the size and financial ability of the broader group.
At the same time, Fitch views the probability of support from
the parent as only
limited, given MTSB's weak performance to date and the bank's
importance and synergy within the group.
KEY RATING DRIVERS - VIABILITY RATING (VR)
MTSB's 'b-' VR reflects currently poor asset quality and further
from rapid recent (and therefore unseasoned) and planned growth
high margin retail lending, its moderate, but vulnerable
capitalisation due to
poor profitability, and the low transparency and potential
related to subsidiary East-West United Bank (EWUB). However, on
side the VR also considers MTSB's reasonable liquidity position.
At end-1H13, MTSB on a standalone basis (excluding EWUB)
reported 9.8% loans
overdue by more than 90 days (non-performing loans, NPLs) and a
further 2.3% of
Corporate NPLs were a high 10.7% of the standalone loan book at
were fully covered by reserves. However, Fitch's review of the
exposures (accounting for roughly 33% of end-1H13 standalone
revealed that many of these, although not technically NPLs, are
risky as they are extended to highly leveraged borrowers, which
particularly vulnerable to economic stresses.
Retail lending (49% of the standalone loan book) quality is
dragged down by the
poor performance of unsecured loans (57% of total retail loans),
NPL origination (calculated as net increase in NPLs plus
write-offs divided by
average performing loans) at a high 20.4% (annualised) in 1H13,
which is also
above the sector average (see "Russian Consumer Finance Sector:
Overheating Mitigated by Significant Buffers at Some Banks"
dated 30 October
2013 at www.fitchratings.com). On a risk-return basis, Fitch
estimates that the
bank is currently slightly above breaking even on its retail
Although MTSB's capital position improved following the recent
(Basel 1 capital adequacy ratio of 21.5% at end-1H13), it is
vulnerable due to planned 20% growth of unsecured retail lending
in 2014 and
weak overall performance (ROAE was moderately negative in 1H13)
significant loan impairment charges. The quality of capital
could also be
weakened by two interbank placements (31% of end-1H13 Fitch core
in Fitch's view may be of a fiduciary nature.
MTSB's liquidity position is adequate with a solid level of
highly liquid assets
(cash, non-restricted short-term bank placements and repoable
sufficient to cover around 30% of MTSB's standalone customer
Fitch also continues to have concerns about the low transparency
operations of Luxembourg-based EWUB, which accounted for 29% of
total assets at
end-1H13. EWUB is primarily engaged in extending cash-backed
foreign-domiciled entities with roots in CIS, which Fitch
understands are mainly
for regulatory purposes or tax considerations. The bank should
not be taking
significant financial risks on the loans, but reputational and
could be high, in the agency's view.
RATING SENSITIVITIES - IDRS, NATIONAL LONG-TERM RATING, SUPPORT
Positive rating actions on MTSB's parent could create upside
potential for the
bank's support-driven ratings, although if MTSB fails to improve
and provide meaningful synergies to the group, it may weaken
propensity to support it and therefore constrain ratings upside.
Any clear indication that Sistema's commitment to MTSB had
weakened, or failure
of the parent to provide timely support, if needed, could result
downgrade of the support-driven ratings.
RATING SENSITIVITIES - VR
Downward pressure on MTSB's VR could arise from material asset
deterioration and/or capital pressure. The VR could mainly
improvements in assets quality, resulting in stronger financial
The rating actions are as follows:
Long-term IDR affirmed at 'B+'; Outlook Stable
Short-term IDR affirmed at 'B'
National Long-term Rating affirmed at 'A-(rus)'; Outlook Stable
Viability Rating affirmed at 'b-'
Support Rating affirmed at '4'
Senior unsecured debt affirmed: 'A-(rus)'
+7 495 956 9981
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26 Valovaya Street
+7 495 956 5576
+7 495 956 6657
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Additional information is available at www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating
Criteria', dated 15
August 2012, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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