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I AGREE
15 Apr 2014
Moscow, April 15, 2014 -- Moody's Interfax Rating Agency has today downgraded national scale ratings
(NSR) of MDM Bank to A2.ru from Aa3.ru. The NSRs
carry no specific outlooks.
Please see ratings tab on the issuer/entity page on moodys.com
for information on Global Scale Rating.
RATINGS RATIONALE
The ongoing deterioration in the Russian economy prompted Moody's
Interfax to reassess the level of expected losses on MDM Bank's
problem assets that include problem loans and repossessed collateral (investment
property). This reassessment effectively lowers the bank's
capital cushion (measured as capital and loan loss reserves minus expected
losses on problem assets). In addition, Moody's Interfax
expects that negative pressure will be exerted on the bank's pre-provision
profits and operating efficiency as a result of a decline in the bank's
regulatory capital, recent deposit outflow and recently increased
interest rates. These expectations and recently deteriorated credit
conditions, in turn, exert further pressure on capital.
As at end-September 2013, MDM Bank's non-performing
loans (NPLs, defined as all overdue loans in the corporate segment
and loans overdue by more than 90 days in the retail segment) stood at
11.6% of gross loans. In addition to overdue loans,
there are 'impaired' but not 'past due' loans
of RUB33 billion (17% of gross loans). Moody's Interfax
considers that the above-mentioned impaired loans (legacy loans)
require additional provisioning and, therefore, the rating
agency considers the 11.2% level of loan loss reserves to
be insufficient, particularly because of the ongoing deterioration
in the Russian economy and limited track record of recoveries on these
loans in recent years. Moody's Interfax also notes the revaluation
risk associated with the high volume of investment property that totalled
RUB11.3 billion or 3.9% of assets (these assets mainly
include relatively illiquid repossessed collateral).
Moody's Interfax notes that MDM Bank reported a healthy capital
cushion (under Basel I): at end-September 2013, the
Tier 1 and total capital adequacy ratios stood at 17.7%
and 19.2%, respectively. The high reported
capital adequacy ratio positions the bank favourably to absorb elevated
credit loss levels, given the bank's high level of problem
loans and relatively low level of loan loss reserves. At the same
time, if adjusted for additional expected losses, Moody's
Interfax considers MDM Bank's capital cushion to be weaker than
that reported by the bank.
The downgrade of MDM Bank's long-term ratings also reflects
the bank's recently decreased regulatory capital and weak recurring
earnings. As at end-March 2014, MDM Bank's regulatory
capital declined to RUB35.5 billion from RUB38.8 billion
reported as at end-March 2013. Given MDM Bank's low
regulatory capital adequacy, Moody's Interfax regards as limited
the bank's ability to improve its currently weak operating efficiency
and pre-provision earnings as MDM Bank has to preserve: (1)
its regulatory capital adequacy ratio; and (2) net interest margin
amid recently increased funding costs in Russia.
Today's downgrade also takes into account the recent deterioration
of MDM Bank's liquidity profile against the background of the decline
in customer deposits during the past six months. In the past,
Moody's Interfax had regarded the bank's healthy liquidity
profile as one of the major positive rating drivers. As at end-September
2013, MDM's loan-to-deposits ratio was at 90%,
while the cash assets amounted to RUB37.4 billion or about 19%
of the bank's total customer funding.
In the first nine months of 2013, MDM Bank's reported pre-provision
income accounted for 1.75% of the bank's average assets.
Moody's Interfax considers that pre-provision profitability,
albeit improving in 2013, might be low and thus unable to absorb
ongoing credit losses associated with the bank's performing loan
book, especially given the recently deteriorating operating environment.
Based on this scenario and the above-mentioned risk exposure for
pre-provision earnings, Moody's Interfax expects further
pressure on the bank's capital in 2014. The negative outlook
on MDM Bank's debt and deposit ratings mainly reflects this risk
as well as the bank's recently weakening liquidity profile.
At the same time, Moody's Interfax notes low single-name
concentrations in the loan book and funding. The bank's customer
funding also displays a fairly granular structure compared to peers:
at end-September 2013, the top 10 customers together accounted
for 13% of total customer deposits.
WHAT COULD MOVE THE RATINGS UP/DOWN
MDM Bank's ratings have limited upside potential, as captured
in the negative outlook. The rating outlook can be changed to stable
if the bank eliminates risks of capital erosion via improving its risk-adjusted
profitability and decreasing of problem loans.
The ratings could be further downgraded if MDM Bank's problem loans
require higher loan loss provisioning than currently anticipated by Moody's
Interfax, or if the deterioration in the operating environment negatively
affects the bank's financial fundamentals.
PRINCIPAL METHODOLOGIES
The principal methodology used in this rating was Global Banks published
in May 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Headquartered in Moscow, Russia, MDM Bank reported total (unaudited
IFRS) assets of RUB290 billion and shareholder equity of RUB48.8
billion at 30 September 2013. For the first nine months of 2013,
the bank earned a net income of RUB43 million.
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 Methodology published in October 2012 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 certain regulatory disclosures in relation
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to rated entity, Disclosure from rated entity.
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review.
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
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for additional regulatory disclosures for each credit rating.
Semyon Isakov
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Yves Lemay
MD - Banking
Financial Institutions Group
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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 downgrades MDM Bank's National Scale Rating to A2.ru
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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