Moscow, April 02, 2012 -- Moody's Interfax has today affirmed the Aa3.ru long-term
national scale rating of Far Eastern Bank. National scale ratings
do not carry any specific outlook.
Moody's Interfax's assessment is primarily based on Far Eastern
Bank's financial statements for 2011 (audited) --
prepared under IFRS, and (unaudited) Russian GAAP as at 1 January
2012.
Please see ratings tab on the issuer/entity page on moodys.com
for information on the global scale ratings of Far Eastern Bank.
RATINGS RATIONALE
According to Moody's Interfax, Far Eastern Bank's ratings
are constrained by (i) high single-name concentration in the loan
book, (ii) maturity mismatches, (iii) weak asset quality and
(v) low capitalisation. However, the ratings are supported
by Moody's Interfax's assessment of a high probability of
capital and liquidity support from its parent Russian Regional Development
Bank (Ba2/Not-Prime/E+, stable outlook, with the
BFSR mapping to b2 on the long-term scale) and by Rosneft (Baa1,
stable outlook) which is, in turn, the owner of Far Eastern
Bank's parent. Other supporting factors include Far Eastern
Bank's recognised name and established branch coverage in the Russian
Far East.
The key factors that position Far Eastern Bank's rating in the Aa3.ru
category are as follows:
Firstly, Far Eastern Bank has high borrower concentrations.
The 20 largest loans accounted for 42% of gross loans at YE2011
(in accordance with IFRS). In relation to Tier 1 capital,
Far Eastern Bank's exposure to the largest 20 borrowers was around
470% at YE2011 (the average for Russian banks is below 250%).
Moody's Interfax notes that this exposes the bank's creditworthiness
to the financial standing of a few large borrowers, with potential
for earnings and asset quality volatility.
Secondly, Far Eastern Bank's exposure to liquidity risk is
high due to the high proportion of short-term customer accounts
in the funding base. This leads to substantial negative liquidity
gaps in all 'time buckets', as assessed in Moody's
Interfax's liquidity stress test. Total deposits with maturity
'on demand' and 'less than a month' accounted
for more than half of total customer accounts at YE2011. In Moody's
Interfax's opinion, this renders the bank's liquidity
profile vulnerable to deposit outflows.
Thirdly, Far Eastern Bank's asset quality is relatively weak,
with problem loans (loans overdue more than 90 days and restructured loans)
accounting for 13% of gross loans at YE2011. Moreover,
due to high concentrations, the bank's loan quality is sensitive
to the financial standing of its largest borrowers. In addition,
almost a third of total loans have been extended to industries regarded
by Moody's Interfax as higher risk, such as financial services
and construction which accounted for 22% and 9% of gross
loans, respectively, as at YE2011 (under IFRS).
Finally, Far Eastern Bank's capital buffer is small,
with the regulatory capital adequacy ratio standing at 11.58%
at 1 March 2012, which is just above the 10% minimum regulatory
requirement. Based on Far Eastern Bank's current level of
loan loss provisions and expected earnings, Moody's Interfax
does not expect capitalisation to fall below the required minimum in the
rating agency's central scenario. However, in an adverse
scenario Far Eastern Bank might require capital support.
Moody's Interfax notes positively that Far Eastern Bank's
ownership structure was significantly streamlined following the 100%
acquisition of its voting shares by Russian Regional Development Bank
(initiated in 2011 and completed in March 2012). Previously,
Far Eastern Bank's ownership structure had been relatively complex
and non-transparent.
Overall, Moody's Interfax believes that the risks stemming
from high single-name concentrations in the loan book, maturity
mismatches, weak asset quality and low capitalisation outweigh the
recent positive change in Far Eastern Bank's ownership structure.
Far Eastern Bank's Aa3.ru rating continues to benefit from
Moody's Interfax's assumption of a high probability of parental
support from Russian Regional Development Bank which fully owns and consolidates
Far Eastern Bank. Far Eastern Bank plans to merge with Russian
Regional Development Bank by the end of 2013.
According to Moody's Interfax, a reduction in concentration
levels, improvements in the liquidity profile and asset quality
as well as a higher capital buffer could exert upward pressure on Far
Eastern Bank's standalone and supported ratings. Conversely,
negative pressure could be exerted on these ratings as a result of any
material adverse changes in the bank's risk profile, particularly
any impairment of its liquidity position, and any failure to maintain
control over asset quality. Furthermore, any evidence of
a lower probability of support from the parent bank and/or Rosneft could
result in a downgrade of the bank's long-term deposit rating
and/or could result in a lowering of the standalone credit strength.
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2012, and Mapping Moody's National
Scale Ratings to Global Scale Ratings published in March 2011.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Headquartered in Vladivostok in the Russian Far East, Far Eastern
Bank had total assets of RUB31.5 billion (USD977.2 million)
and total equity of RUB3.2 billion (USD98.7 million),
and reported a net profit of RUB496.4 million (USD15.4 million)
as at YE2011, according to audited IFRS.
Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are
intended as relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global scale
ratings in that they are not globally comparable with the full universe
of Moody's rated entities, but only with NSRs for other rated debt
issues and issuers within the same country. NSRs are designated
by a ".nn" country modifier signifying the relevant
country, as in ".ru" for Russia. For further
information on Moody's approach to national scale ratings, please
refer to Moody's Rating Implementation Guidance published in March 2011
entitled "Mapping Moody's National Scale Ratings to Global Scale
Ratings".
ABOUT MOODY'S AND MOODY'S INTERFAX
Moody's Interfax Rating Agency (MIRA) specializes in credit risk analysis
in Russia. MIRA is a joint-venture between Moody's Investors
Service, a leading provider of credit ratings, research and
analysis covering debt instruments and securities in the global capital
markets, and the Interfax Information Services Group. Moody's
Investors Service is a subsidiary of Moody's Corporation (NYSE:
MCO).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Katrin Robeck
Analyst
Financial Institutions Group
Moody's Interfax Rating Agency
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Yves Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Interfax Rating Agency
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's Interfax affirms Aa3.ru rating of Far Eastern Bank
