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Rating Action:

Moody's affirms Alfa-Bank's long-term Ba1 ratings; outlook stable

02 Jul 2014

London, 02 July 2014 -- Moody's Investors Service has today affirmed the long-term debt and deposit ratings of Alfa-Bank at Ba1 and its standalone bank financial strength rating (BFSR) of D, corresponding to the standalone baseline credit assessment (BCA) of ba2. The rating affirmations reflect the continued incorporation of one notch of uplift in the long-term ratings of Alfa-Bank due to systemic support assumptions, and its resilient credit profile, robust capital ratios and sustainable core profitability. The outlook on all long-term ratings and the BFSR is stable.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

--- BFSR

In affirming the bank's standalone BFSR at the current level, Moody's says that Alfa's resilient credit profile, robust capital ratios and sustainable core profitability imply that its franchise is able to withstand the challenging operating environment in Russia and asset-quality pressures that are expected in the current year.

Alfa's standalone BFSR is supported by its established franchise as the fifth-largest banking group in Russia with a growing branch network and customer base. The bank's problem loans were 3.5% of total gross loans at end-2013 compared to its Russian peers (5%-7% problem loan ratios on average), which Moody's attributes to Alfa's efficient problem-loan workout procedures. Due to its conservative provisioning policy (provisioning expenses at 1.8% of the loan book for 2013) Alfa-Bank maintains above 100% coverage of existing problem loans, thus reducing pressure on the bank's capital.

Moody's notes that the bank's capital adequacy has improved, despite pressure due to new lending growth over recent years, as the bank maintains a high rate of capital retention. Total CAR (Basel I) stood at 16.7% at year-end 2013, with Tier 1 at 11.7% (2012: 15.6% and 10.2%, respectively).

Moody's considers Alfa's liquidity buffer as adequate in the context of its customer-driven deposit funding base. Its international wholesale funding refinancing risk remains low (less than 3% of total liabilities) over a one year horizon and a larger portion of its Interbank funding represents collateralised transactions with the Central Bank of Russia.

--- SUPPORTED LONG-TERM DEBT AND DEPOSIT RATINGS

Moody's continues to incorporate one notch of uplift in the long-term ratings of Alfa due to systemic support assumptions. The bank's relatively sizeable 3% market share in retail deposits (compared with other privately-owned peers) in Russia is a key driver behind the current uplift. The bank also has a track-record of benefiting from government-related subordinated debt funding during the 2009 downturn. The current level of uplift would be resilient to a potential one-notch downgrade of the sovereign rating, thus supporting the stable outlook on the long-term ratings.

What Could Change the Rating Up / Down

Any positive developments would require one or more of the following (1) the ongoing ability to maintain overall profitability and a capital buffer commensurate with the credit risks that the current deteriorating operating environment poses; and (2) a marked improvement in the bank's risk profile, reflected in decreased concentration levels in loans and related-party exposures.

A significant deterioration of the bank's asset quality, capitalisation and/or liquidity position (including refinancing risk) could have a negative impact on its BCA, as could a weakening market position and a material loss of market share. The escalation of international sanctions related to the on-going political crisis in Ukraine could lead to further deterioration of the operating environment leading to increased negative pressure on bank's ratings.

Alfa-Bank's senior debt/deposit ratings could be downgraded in the event of (1) a downgrade of the bank's BFSR; or (2) a multi-notch downgrade of the Russian sovereign rating; and/or (3) if Moody's re-assesses downwards its current views on the probability of systemic support being available to Alfa-Bank.

LIST OF AFFECTED RATINGS

Issuer: Alfa-Bank

....Adjusted Baseline Credit Assessment, maintained at ba2

....Baseline Credit Assessment, maintained at ba2

....Bank Financial Strength Rating, Affirmed D STA

....Long-term Deposit Ratings, Affirmed Ba1 STA

....Short-term Deposit Ratings, Affirmed NP

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 STA

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 STA

....Subordinate Regular Bond/Debenture, Affirmed Ba3 STA

....Backed Subordinate Regular Bond/Debenture, Affirmed Ba3 STA

....Outlook, Stable

Issuer: Alfa MTN Invest Ltd

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....Outlook, Stable

Issuer: Alfa MTN Issuance Limited

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 STA

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....Backed Short-term Medium-Term Note Program, Affirmed (P)NP

....Outlook, Stable

Issuer: Alfa MTN Markets Limited

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....Backed Short-term Medium-Term Note Program, Affirmed (P)NP

....Outlook, Stable

Issuer: Alfa MTN Projects Limited

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....Outlook, Stable

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating 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 the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Irakli Pipia
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Alfa-Bank's long-term Ba1 ratings; outlook stable
No Related Data.
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