October 5, 2017 / 3:30 PM / 2 months ago

Fitch Upgrades Rusuniversal; Affirms 2 Other Mid-sized Russian Banks

(The following statement was released by the rating agency) MOSCOW, October 05 (Fitch) Fitch Ratings has upgraded Russian Universal Bank's (Rusuniversal) Long-Term Issuer Default Ratings (IDRs) to 'B+' from 'B'. At the same time, Fitch has affirmed the Long-Term IDRs of SDM-Bank (SDM) at 'BB-' and Expobank LLC (Expo) at 'B+'. The Outlooks on all banks are Stable. A full list of rating actions is at the end of this rating action commentary. The upgrade of Rusuniversal reflects the bank's extended record of strong financial metrics and limited risk appetite. The affirmations of SDM and Expo reflect the banks' fairly stable financial performance through the credit cycle, in particular (i) stable asset quality, (ii) generally healthy performance, and (iii) reasonable capital buffers. The ratings of all three banks continue to reflect their fairly narrow franchises (in particular at Rusuniversal) resulting in, among other things, significant balance sheet concentrations and some uncertainty regarding future growth strategies in a still challenging operating environment. The higher rating of SDM relative to peers reflects its more stable and sustainable franchise and business model and greater consistency of performance. KEY RATING DRIVERS IDRS AND VIABILITY RATINGS SDM SDM's asset quality has remained resilient as the share of non-performing loans (NPLs, loans overdue more than 90 days) constituted a low 1.5% of gross loans at end-1H17 (1.3% at end-2016), and are fully reserved. Restructured exposures added another 2%, although these were performing under the revised terms. Concentrations are high (the 20 largest borrowers accounted for 56% of gross loans, equal to 134% of Fitch Core Capital, (FCC)), but the quality of the largest exposures is generally adequate. Higher-risk exposures include construction and rental businesses (33% of FCC) and car dealers (10%), but these are well-covered by hard collateral. The FCC to risk-weighted assets ratio stood at a reasonable 19% at end-1H17, up from 15% in 2015, due to healthy internal capital generation in 2016 of 19%. Regulatory capitalisation is somewhat weaker due to higher risk-weightings, with the Tier 1 capital ratio standing at 11.6% at the same date. However, this still allowed the bank to absorb losses equal to 17% of loans before breaching the regulatory minimum levels. SDM is mainly funded with customer accounts (95% of total liabilities at end-1H17). Thirty-five per cent of these were interest-free current accounts of corporates and individuals, supporting the bank's profitability (funding costs were a low 5% in 1H17, annualised). The potential outflow of these funds is mitigated by a significant liquidity cushion, which allowed for the repayment of 60% of total customer funding at end-8M17. Expo Expo's asset quality has been stable during the last 12 months with NPLs standing at 3.1% of gross loans at end-1H17 (1.9x reserved). Although the bank's loan book is highly concentrated by name (the 25 largest borrowers made up 91% of total loans at end-1H17), the risks are mitigated by the small size of the loan portfolio (1.7x FCC). The potentially more volatile real estate and construction sector represented a high 40% of gross loans; however, in many cases the collateral is liquid with reasonable loan-to-values (LTVs). The loans/assets ratios was a low 33% at end-1H17, while the majority of the securities book (42% of assets) was 'BBB'/'BB' rated. The bank's FCC ratio was a comfortable 19.6% at end-1H17. The regulatory Tier 1 ratio was a lower but still reasonable 14.5% at end-8M17, due primarily to more conservative risk weightings. Fitch estimates that the bank's regulatory capital buffer was sufficient to increase impairment reserves up to a considerable 37% of loans, from the current 7%, without breaching minimum capital requirements (including capital buffers). Expo's profitability is volatile and has depended so far mainly on gains from securities revaluations and execution of M&A deals, which made up 75% of profit before tax in 2016, but were negligible in 1H17. This resulted in deterioration of overall profitability, notwithstanding a reduction of impairment charges, with annualised return on average equity (ROAE) falling to 14% in 1H17 from 28% in 2016. The bank's liquidity cushion covered customer accounts by a high 65% at end-1H17, while market refinancing needs are limited. Rusuniversal Rusuniversal's IDRs are constrained by the bank's small size, highly concentrated relationship-based business model and tighter regulation on banking services to defence industry enterprises that narrows the bank's core business. Positively, the ratings acknowledge Rusuniversal's very strong financial metrics. Rusuniversal focuses mainly on defence sector companies with whom the bank's management and shareholders have long-standing relations. Both loans and deposits are extremely concentrated. The bank had only 10 corporate loans (while retail lending is negligible), while the top 10 depositors represented 87% of total customer accounts at end-1H17. The tighter regulation resulted in several of Rusuniversal's largest customers (about half of total customer accounts) moving to other banks in September 2017. Although this is manageable for the bank given full coverage of customer accounts by liquid assets, this could negatively affect Rusuniversal's business and performance. Rusuniversal's financial metrics remain robust. The bank has zero NPLs and very high regulatory capitalisation (the total capital ratio was above 100% at end-9M17). The bank's loan book is small (20% of total assets, equal to just 40% of the bank's equity), while most other assets are either invested in rouble sovereign debt or placed with the Central Bank of Russia. SUPPORT RATINGS AND SUPPORT RATING FLOORS The '5' Support Ratings for all three banks reflect Fitch's view that support from the banks' shareholders, although possible, cannot be relied upon. The Support Ratings and Support Rating Floors of 'No Floor' also reflect that support from the Russian authorities cannot be relied upon due to the banks' small size and lack of overall systemic importance. Accordingly, the IDRs of all three banks are based on their intrinsic financial strength, as reflected in their Viability Ratings. SENIOR UNSECURED DEBT RATINGS Fitch has affirmed and withdrawn the rating of Expo's senior unsecured debt as it is no longer considered by Fitch to be relevant to the agency's coverage because a negligible amount of the issue remains outstanding. RATING SENSITIVITIES IDRS AND VIABILITY RATINGS Downside pressure on all three banks' ratings could stem from asset quality deterioration if this results in erosion of profitability and capital. A significant liquidity squeeze would also be credit-negative. Upside for the ratings of SDM and Rusuniversal is limited by their small franchises. Upside for Expo's ratings would be contingent on improvements in asset quality, an extended record of reasonable financial metrics and adoption of a more stable and sustainable business model. SUPPORT RATINGS AND SUPPORT RATING FLOORS Positive rating action is unlikely in the foreseeable future, although acquisition by a stronger owner could lead to an upgrade of the Support Rating. The rating actions are as follows: SDM Long-Term Foreign and Local Currency IDRs affirmed at 'BB-'; Outlook Stable Short-Term Foreign Currency IDR affirmed at 'B' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Viability Rating affirmed at 'bb-' Expo Long-Term Foreign and Local Currency IDRs: affirmed at 'B+'; Outlooks Stable Short-Term Foreign Currency IDR affirmed at 'B' Support Rating affirmed at '5' Viability Rating affirmed at 'b+' Support Rating Floor affirmed at 'No Floor' Senior unsecured debt affirmed at 'B+'/Recovery Rating 'RR4'; withdrawn Rusuniversal Long-Term Foreign and Local Currency IDRs upgraded to 'B+' from 'B', Outlooks Stable Short-Term Foreign Currency IDR affirmed at 'B' Viability Rating upgraded to 'b+' from 'b' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Contact: Primary Analysts Roman Kornev (SDM, Expo) Director +7 495 956 7016 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Ruslan Bulatov (Rusuniversal) Associate Director +7 495 956 9982 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Secondary Analysts Konstantin Alekseenko (SDM) Analyst +7 495 956 2401 Ruslan Bulatov (Expo) Associate Director +7 495 956 9982 Artem Beketov (Rusuniversal) Analyst +7 495 956 9932 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below