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Fitch Downgrades VTB to 'BBB-'; Affirms Sberbank and VEB at 'BBB'
January 10, 2014 / 2:36 PM / in 4 years

Fitch Downgrades VTB to 'BBB-'; Affirms Sberbank and VEB at 'BBB'

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(The following statement was released by the rating agency) MOSCOW, January 10 (Fitch) Fitch Ratings has downgraded the Long-term Issuer Default Ratings (IDRs) of JSC VTB Bank (VTB) and six of its subsidiaries to 'BBB-' from 'BBB'. The Outlooks on these ratings are Stable. At the same time, the agency has affirmed the 'BBB' Long-term IDRs of Sberbank of Russia (Sberbank) and Vnesheconombank (VEB) with Stable Outlooks. A full list of rating actions is provided at the end of this comment. KEY RATING DRIVERS - VTB'S IDRS, SUPPORT RATING, SUPPORT RATING FLOOR, DEBT RATINGS AND NATIONAL RATING The downgrade of VTB's ratings reflects Fitch's view of a marginally lower probability of government support for the bank. This view is based on (i) the bank's limited policy role (compared with VEB) and more moderate systemic importance (relative to Sberbank); (ii) the bank's reduced (to 60.9%) government ownership and plans for further privatisation, subject to market conditions; (iii) potential support 'fatigue' with respect to VTB following substantial assistance provided to the bank in recent years, and the tail risk of significant losses at the bank given weaknesses in corporate governance and sometimes aggressive risk management; and (iv) the authorities' recent track record of only limited and rather slow support even to state-owned banks with clearly defined policy roles, namely Russian Agricultural Bank (BBB-/Stable) and VEB. At the same time, VTB's IDRs continue to be underpinned by Fitch's view of the high probability of government support, in case of need, given (i) the bank's still majority state ownership; (ii) its high systemic importance; and (iii) the track record of capital and funding support to date. KEY RATING DRIVERS - SBERBANK'S AND VEB'S IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS, DEBT RATINGS AND NATIONAL RATINGS The 'BBB' Long-term IDRs of Sberbank and VEB are at the same level as those of the sovereign, and are underpinned by Fitch's view of a very high probability of support from the Russian authorities, in case of need. This view is based on (i) the current majority state ownership of these banks (50%+1 share in Sberbank; 100% of VEB); (ii) the exceptionally high systemic importance of Sberbank (accounted for 29% of system assets and 45% of retail deposits at end-11M13) and VEB's policy role as a development bank; (iii) the track record of capital and funding support; and (iv) the close association between the authorities and the two banks. Furthermore, Sberbank's Long-term IDR is currently driven by Fitch's view of the bank's standalone strength, reflected in its 'bbb' Viability Rating (VR), and so would not come under downward pressure even if Fitch lowers its expectation of government support for the bank. RATING SENSITIVITIES - ALL THREE BANKS' IDRS, SUPPORT RATINGS, SUPPORT RATING FLOORS, DEBT RATINGS AND NATIONAL RATINGS The three banks' Long-term IDRs would likely be upgraded or downgraded in case of similar rating action on the Russian sovereign. However, this is not expected in the near term given the Stable Outlook on the sovereign ratings. The Support Rating Floors of Sberbank and VTB, and hence also the Long-term IDRs of VTB, could come under downward pressure in case of (i) a further reduction of government ownership in the banks, to below 50%; and (ii) introduction of a bank resolution framework in Russia which provides for statutory bail-in of senior creditors. However, Fitch does not expect significant progress with the banks' privatisation or a resolution framework in the near term. Sberbank's Long-term IDR would only be downgraded if both its Support Rating Floor and its VR are downgraded. The recent delays with provision of support to VEB are unlikely to result in negative action on the bank's ratings, given its policy role and exceptionally close ties with the government. However, an extended failure to provide support in the face of clear solvency problems, coupled with any statements from government officials expressing doubt as to the desirability of support, could result in downward rating pressure. KEY DRIVERS AND SENSITIVITIES - SBERBANK'S VIABILITY RATING The affirmation of Sberbank's 'bbb' VR reflects it dominant market position, stable deposit base, currently strong performance and solid liquidity position. The rating also takes into account the bank's strong asset quality and adequate capitalisation. An upgrade of Sberbank's VR would be contingent on an upgrade of the Russian Federation and continued strong financial metrics of the bank. A downgrade of the Russia sovereign would likely result in a downgrade of Sberbank's VR. KEY RATING DRIVERS AND SENSITIVITIES - VTB'S VIABILITY RATING VTB's 'bb-' VR reflects a high level of credit risk in the bank's corporate loan book and other asset exposures, the weak quality of its earnings, and weaknesses in risk management and corporate governance. At the same time, the rating also reflects reduced near-term risks about the bank's capitalisation after the SPO in 2Q13 and considerable flexibility to upstream dividends and liquidity from the parent bank's better performing subsidiaries, in particular VTB24. The VR is also supported by the bank's broad franchise, currently reasonable liquidity and moderate refinancing risk. Fitch has withdrawn VTB's VR as the bank has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the rating. KEY RATING DRIVERS AND SENSITIVITIES - SUBSIDIARY IDRS, SUPPORT RATINGS, DEBT RATINGS, NATIONAL RATINGS The ratings of five VTB bank subsidiaries - VTB24, Bank of Moscow (BoM), VTB Capital plc. (VTBC), VTB Bank Austria (VTBA) and VTB Bank (France) SA (VTBF) - and of the leasing subsidiaries of all three banks - Sberbank Leasing, VTB Leasing and VEB Leasing - are equalised with their parents, reflecting their ownership, high integration with parent institutions, the track record of support, common branding (except BoM) and generally moderate/small size relative to parents. The ratings are likely to be upgraded/downgraded in case of similar actions on the parent banks. Fitch has withdrawn VTBC's ratings as the bank has chosen to stop participating in the rating process, as the rating of the issuer is no longer considered by Fitch to be relevant to the agency's coverage. Accordingly, Fitch will no longer provide ratings or analytical coverage for VTBC. KEY RATING DRIVERS AND SENSITIVITIES - VTB24'S VIABILITY RATING VTB24's 'bb' VR reflects the bank's tightly managed capital position, resulting from large dividend payments to VTB. However, the rating also reflects its solid retail franchise; still resilient, albeit somewhat deteriorated, asset quality; healthy profitability; strong liquidity; and limited wholesale debt. An upgrade of VTB24's VR would be contingent on an improvement of the credit profile of the broader group, resulting in lower contingent risks for VTB24, as well as continued strong performance of the bank's retail business. Conversely, VTB24's VR may be downgraded in case of marked asset quality deterioration and/or further erosion of VTB's credit profile. KEY RATING DRIVERS AND SENSITIVITIES - BOM'S VIABILITY RATING BoM's 'bb-' VR reflects the still high level of non-performing loans on the bank's balance sheet and a limited track record following its bail-out by VTB in 2011. BOM's VR is closely tied to VTB's credit profile in light of the rather high fungibility of capital and liquidity between the two banks. However, the VR also takes into account the bank's solid capital and liquidity positions following its rescue in 2011, and currently reasonable performance. The VR could be downgraded if there is a marked weakening of capitalisation (including as a result of dividend payments to the parent) or of asset quality. The VR could be upgraded in case of improvements in the parent's credit profile and an extended track record of reasonable performance. The rating actions are as follows: VTB: Long-term foreign and local currency IDRs: downgraded to 'BBB-' from 'BBB'; Outlooks Stable Short-term foreign currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' Support Rating Floor: revised to 'BBB-' from 'BBB' National Long-term Rating: downgraded to 'AA+(rus)' from 'AAA(rus)', Outlook Stable Senior unsecured debt (including that issued by VTB Capital SA) long-term ratings: downgraded to 'BBB-' from 'BBB' Senior unsecured debt short-term rating: affirmed at 'F3' Senior unsecured debt National long-term rating: downgraded to 'AA+(rus)' from 'AAA(rus)' Subordinated debt issued by VTB Capital SA: downgraded to 'BB+' from 'BBB-' Viability Rating: affirmed at 'bb-' and withdrawn VTB24: Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' National Long-term Rating: downgraded to 'AA+(rus)' from 'AAA(rus)', Outlook Stable Senior unsecured debt long-term rating: downgraded to 'BBB-' from 'BBB' Senior unsecured debt short-term rating: affirmed at 'F3' Viability Rating: affirmed at 'bb' Bank of Moscow (BoM): Long-term foreign and local currency IDRs: downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' National Long-term Rating: downgraded to 'AA+(rus)' from 'AAA(rus)', Outlook Stable Senior unsecured debt (including that issued by BOM Capital PLC) long-term rating: downgraded to 'BBB-' from 'BBB' and to and 'BBB-(EXP)' from 'BBB(EXP)' Senior unsecured debt National long-term rating: downgraded to 'AA+(rus)' from 'AAA(rus)' and to 'AA+(rus)(EXP)' from 'AAA(rus)(EXP)' Subordinated debt, issued by Kuznetski Capital S.A., long-term rating: downgraded to 'BB+' from 'BBB-' Viability Rating: affirmed at 'bb-' VTB Capital plc (VTBC): Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable, rating withdrawn Short-term foreign currency IDR: affirmed at 'F3', rating withdrawn Support Rating: affirmed at '2', rating withdrawn Senior unsecured debt long term rating: downgraded to 'BBB-' from 'BBB', rating withdrawn VTB Bank (Austria) (VTBA): Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' VTB Bank (France) SA. (VTBF) Long-term foreign currency IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' Senior unsecured debt short-term rating: affirmed at 'F3' VTB Leasing Long-term foreign and local currency IDRs: downgraded to 'BBB-' from 'BBB'; Outlooks Stable Short-term foreign and local currency IDRs: affirmed at 'F3' National Long-term Rating: downgraded to 'AA+(rus)' from 'AAA(rus)', Outlook Stable Support Rating: affirmed at '2' Senior unsecured debt (including that issued by VTB-Leasing Finance) long-term rating: downgraded to 'BBB-' from 'BBB' Sberbank: Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlook Stable Short-term foreign and local currency IDRs: affirmed at 'F3' Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB' Viability Rating: affirmed at 'bbb' National Long-term Rating: affirmed at 'AAA(rus)'; Outlook Stable Senior unsecured debt (including that issued by SB Capital S.A.) long-term ratings: affirmed at 'BBB' and 'BBB(EXP)' Senior unsecured debt (including that issued by SB Securities S.A.) short-term rating: affirmed at 'F3' Senior unsecured debt National long-term rating: affirmed at 'AAA(rus)(EXP)' Subordinated debt, issued by SB Capital S.A., long-term rating: affirmed at 'BBB-' Sberbank Leasing: Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' National Long-term Rating: affirmed at 'AAA(rus)', Outlook Stable Support Rating: affirmed at '2' Vnesheconombank (VEB): Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' National Long-term Rating: assigned at 'AAA(rus)'; Outlook Stable Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB' Senior unsecured debt (including that issued by VEB Finance PLC) long-term rating: affirmed at 'BBB' OJSC VEB-Leasing: Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlook Stable Short-term foreign currency IDR: affirmed at 'F3' National Long-term Rating: affirmed at 'AAA(rus)', Outlook Stable Support Rating: affirmed at '2' Senior unsecured debt (including that issued by VEB Leasing Investment Ltd) long-term rating: affirmed at 'BBB' Senior unsecured debt National Long-term rating: affirmed at 'AAA(rus)' Contacts: Primary Analysts Alexander Danilov (VTB, VTBC, VTBA, VTBF, BoM, VEB) Senior Director +7 495 956 24 08 Fitch Ratings Moscow Valovaya Str, 26 Moscow Anton Lopatin (Sberbank, Sberbank Leasing, VTB Leasing) Associate Director +7 495 956 70 96 Dmitry Vasiliev (VTB24) Associate Director +7 495 956 55 76 Aslan Tavitov (VEB Leasing) Associate Director +7 495 956 70 65 Secondary Analysts Evgeny Konovalov (VTBC, VTBF, VTBA) Analyst +7 495 956 99 32 Aslan Tavitov (VEB, Sberbank Leasing, VTB Leasing) Associate Director +7 495 956 70 65 Konstantin Yakimovich (Sberbank, VTB24) Analyst +7 495 956 99 78 Anton Lopatin (VEB Leasing, BoM) Associate Director +7 495 956 70 96 Dmitry Vasiliev (VTB) Associate Director +7 495 956 55 76 Committee Chairperson James Watson Managing Director +7 956 66 57 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 15 August 2012, National Ratings Criteria, dated 19 January 2011, Assessing and Rating Bank Subordinated and Hybrid Securities, dated 5 December 2012, 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 here Assessing and Rating Bank Subordinated and Hybrid Securities here National Scale Ratings Criteria here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 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 EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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