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TEXT - S&P raises Russian Foreign Economic Industrial Bank rating
January 14, 2013 / 3:56 PM / in 5 years

TEXT - S&P raises Russian Foreign Economic Industrial Bank rating

(The following statement was released by the rating agency)

Overview
     -- We believe that Russian Foreign Economic Industrial Bank 
(Vneshprombank) has a strong liquidity position and only moderate refinancing 
needs. 
     -- We anticipate that the bank will maintain its large liquidity cushion, 
which we think is sufficient to meet the bank's obligations over the next one 
to two years. 
     -- We are therefore raising our short-term counterparty credit rating on 
Vneshprombank to 'B' from 'C', and affirming our 'B' long-term credit and 
'ruA-' national scale ratings on the bank. 
     -- The stable outlook reflects our expectation that the bank will 
gradually strengthen its business position by expanding its branch network and 
attracting more corporate clients, while maintaining capital adequacy and 
liquidity at least at current levels.

Rating Action
On Jan. 14, 2013, Standard & Poor's Ratings Services raised its short-term 
counterparty credit rating on Russian Foreign Economic Industrial Bank 
(Vneshprombank) to 'B' from 'C'. At the same time, we affirmed our 'B' 
long-term counterparty credit and 'ruA-' Russia national scale ratings on the 
bank. The outlook is stable.

Rationale
The raising of the short-term rating reflects our assessment of 
Vneshprombank's liquidity position as "strong" under our criteria, and assumes 
that the bank will make no substantial changes to its conservative liquidity 
management in 2013. We believe that the bank has stronger liquidity ratios and 
market indicators than most of its other rated domestic peers.  

Vneshprombank is a midsize Russian bank with total assets of Russian ruble 
(RUB) 113 billion as of Dec. 1, 2012 (under Russian accounting standards). 
Vneshprombank primarily focuses on corporate banking and has high revenue and 
funding concentrations on a limited number of large corporate clients. The 
largest depositor accounted for 23% of total deposits at Dec. 1, 2012. 
Moreover, as of the same date, 16% of total liabilities were demand deposits. 
This renders the bank vulnerable to the potential unexpected loss of a single 
corporate depositor. However, in our view, these risks are mitigated to a 
significant extent by the bank's sizable liquidity cushion and track record of 
efficient liquidity management. Cash and money market instruments--mostly in 
accounts with large foreign banks--made up almost 30% of total assets at Dec. 
1, 2012, which is large and significantly above peers. Besides, the bank 
grants mostly working capital short-term loans, which we note leads to higher 
asset turnover and better predictability of loan payouts. We anticipate that 
the bank will maintain its ample liquidity cushion in 2013, which will limit 
refinancing risks.

We consider the bank's funding profile to be "average" under our criteria. Our 
view balances the aforementioned depositor concentrations against a low 
loan-to-deposit ratio of 76% on Dec. 1, 2012, and limited use of wholesale 
debt (11% of total assets). Vneshprombank redeemed a RUB1.5 billion bond in 
November 2012 and successfully placed a five-year bond for the same amount in 
December 2012. Funding from the Russian Central Bank accounted for a nominal 
2.5% of total assets as of Dec. 1, 2012, and was fully covered by the funds 
held in the corresponding Central Bank account. 
 
In addition to our assessments of Vneshprombank's "strong" liquidity and 
"average" funding, our ratings reflect our 'bb' anchor for a commercial bank 
operating only in Russia, the bank's "weak" business position, "moderate" 
capital and earnings, and "moderate" risk position, as our criteria define 
these terms. We assess the bank's stand-alone credit profile (SACP) at 'b'.

Outlook
The stable outlook on Vneshprombank reflects our expectation that the bank 
will gradually strengthen its business position by expanding its branch 
network and attracting more corporate clients, while maintaining capital 
adequacy and liquidity at least at current levels. 

We could raise the ratings if continuing business expansion and 
diversification is supported by internal capital generation or additional 
capital from the shareholders, and if the bank maintains its current asset 
quality and diversifies its sources of funding. 

We could lower the ratings if capital adequacy erodes, causing the 
risk-adjusted capital ratio before adjustments to fall to less than 5.0%, if 
rapid growth triggers additional asset risks, or if the bank's funding and 
liquidity deteriorates. However, we do not assume these developments in our 
base-case scenario. 

Ratings Score Snapshot
Issuer Credit Rating                   B/Stable/B

SACP                                   b
 Anchor                                bb
 Business Position                     Weak (-2)
 Capital and Earnings                  Moderate (0)
 Risk Position                         Moderate (-1) 
 Funding and Liquidity                 Average and strong (0)

Support                                0
 GRE Support                           0
 Group Support                         0
 Sovereign Support                     0
Additional Factors                     0

 (Caryn Trokie, New York Ratings Unit)

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