(The following statement was released by the rating agency)
MOSCOW/LONDON, July 22 (Fitch) Fitch Ratings has affirmed
Bank's (UB) and its subsidiary Uralsib Leasing Group's (ULG)
Default Rating (IDR) at 'B+'. The Rating Outlook is Negative. A
full list of
rating actions is provided at the end of the commentary.
KEY RATING DRIVERS - UB'S IDRS AND VIABILITY RATING (VR)
The affirmation of ratings with a Negative Outlook reflects
Fitch's view that
the credit profile remains under downward pressure from
capitalisation, slow progress with reduction of large non-core
related-party exposures, poor operating performance, and a
Positively the ratings are supported by the bank's granular
corporate loan book
of generally decent quality, adequately performing retail
lending and a solid
retail deposit collection capability. We also give some
credibility to the
bank's capital-raising plan and its efforts to improve
rebalancing the loan book in favour of higher-yielding retail
re-pricing corporate loans and cost cutting.
The major weakness is capitalisation (Fitch Core Capital
ratio of 8.9% at
end-2013) in light of the large holdings of non-core assets and
exposures cumulatively equalling to 1.5x of FCC at end-2013.
These exposures included:
-RUB19bn (62% of FCC) indirect (held through a mutual fund)
investment in 92.7%
equity stake of insurance group SG Uralsib (SGU), which is not
UB due to lack of operational control and plans to sell it.
However, the sale at
the currently high valuation (6x net assets) could be
problematic given its poor
performance and a challenging Russian insurance market.
-RUB19bn (62% of FCC) of real-estate investments (also held
funds), some of which (e.g. land in Moscow about a third of the
are also aggressively valued, in Fitch's view.
-RUB8bn of related-party exposures (26% of FCC), including
RUB1.8bn of unsecured
interbank placements and RUB6.2bn of receivables and loans
secured with land.
Regulatory capitalisation is of particular concern (core Tier I
and Total ratios
of 7.9% and 11.2%, respectively, at end-1H14), because Basel III
introduced in 2014 require investments in financial companies
(even if held
indirectly, such as SGU) to be gradually deducted (by 20% each
from1 January 2014) from core Tier 1 capital. UB expects next
such deduction at
1 January 2015 to be around RUB3.6bn (about 11% of Tier 1
regulatory capital at
Although not a base case, further downside risks for the
capitalisation may arise from potential changes with respect to
treatment of UB's holding of RUB6.3bn (20% of FCC) convertible
bonds of ULG (treated as equity in the company's accounts) or
above real estate
investments (currently 250% risk-weighted) should deductions for
these from the
bank's core Tier I capital become required as is for equity
To relieve regulatory capital pressure UB plans to slash capital
(after RUB1.5bn of mostly dividends and charitable contributions
on behalf of
the shareholder in 2013) and, make a perpetual debt placement in
private investors, according management. However, the latter
would not improve
core Tier 1 ratio, which in the medium-term would still require
improvement and/or a new equity contribution.
The ratio of non-performing (overdue by more than 90 days) loans
loans was roughly stable in 2013 at about 10%, due to problem
equalling to 4% of corporate loans and generally sound
performance of retail
loans. In 1H14, few defaults among large borrowers led to
charges in regulatory accounts, although these are unlikely to
significant additional provisioning.
Fitch does not see imminent risks from UB's 40 largest
exposures (20% of loans), except an exposure to OAO Mechel,
metals and mining group of companies, and its shareholder. This
1.2% of gross loans (11% of FCC), and although currently
performing, is subject
to whether and how the state intends to save the company from
Liquidity has been volatile, but remains supported by a granular
and a strong retail deposit collection capacity. UB's standalone
(cash, bank placements and unencumbered repo-able debt
securities), net of its
near-term debt maturities, represent a moderate 17% of customer
deposits on 17
July 2014, up on end-May 2014's 9%. ULG's upcoming repayments
significant, and hence unlikely to be a source of liquidity
pressure for UB.
RATING SENSITIVITIES - UB'S IDRS AND VR
The ratings could be downgraded if capital-raising plan fails or
capitalisation and/or its quality erodes further due to either
performance, downward adjustments to some of the asset
valuations or any new
material capital withdrawals by the shareholder. A major
liquidity squeeze could
also lead to a downgrade.
Ratings could stabilise at the current level if the bank is able
to raise new
capital by end-2014 to support regulatory capitalisation, as
well as delivering
on its target to improve core profitability thereby reducing the
external capital in the face of future capital deductions for
KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND
SUPPORT RATING FLOOR
UB's '4' Support Rating and 'B' Support Rating Floor reflect the
probability of government support, given the bank's broad
across Russia and significant deposit franchise. The ratings
could be downgraded
if state support fails to be made available when needed. The
could be upgraded if UB becomes owned by a high-rated entity.
KEY RATING DRIVERS AND SENSITIVITIES - ULG'S IDRS AND SUPPORT
ULG's IDRs are equalised with the parent's IDRs based on Fitch's
view that ULG
is a core subsidiary and would likely be supported by UB in case
of need. This
view is based on majority 87.6% ownership by UB, a significant
supervision by the parent through the Board of Directors and at
level, high reputational risk for UB of ULG's potential default
due to, among
other things, the entities' common branding.
ULG's IDRs are likely to move in tandem with the parent's
ratings. Although we
believe UB currently retains flexibility to provide support, we
notching down ULG's ratings from UB's if the latter's ability to
support to the leasing subsidiary deteriorates significantly as
a result of
weakened financial standing and/or regulatory limitations.
The rating actions are as follows:
Long-Term IDR affirmed at 'B+'; Outlook Negative
Short-Term IDR affirmed at 'B'
Viability Rating affirmed at 'b+'
Support Rating affirmed at '4'
Support Rating Floor affirmed at 'B'
Uralsib Leasing Group:
Long-Term Foreign Currency IDR affirmed at 'B+'; Outlook
Short-Term Foreign Currency IDR affirmed at 'B'
Long-Term Local Currency IDR affirmed at 'B+'; Outlook Negative
Support Rating affirmed at '4'
Primary Analyst (URALSIB Bank)
+7 495 956 2408
Fitch Ratings CIS Ltd
26 Valovaya Street
Primary Analyst (Uralsib Leasing Group)
+7 495 956 9981
Secondary Analyst (URALSIB Bank, Uralsib Leasing Group)
+7 495 956 7016
+7 495 956 6906
Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153,
firstname.lastname@example.org; Julia Belskaya von Tell, Moscow,
Tel: +7 495 956
9908, Email: email@example.com.
Additional information is available on www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating
Criteria' dated 31
January 2014, 'Rating FI Subsidiaries and Holding Companies,
dated 10 August
2012, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Rating FI Subsidiaries and Holding Companies
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH