London, 10 June 2021 -- Moody's Investors Service ("Moody's") has today
affirmed long-term local and foreign currency bank deposit ratings
of National Reserve Bank (NRB) at B2 and changed the outlook on these
ratings to stable from positive. Concurrently, Moody's
affirmed NRB's Baseline Credit Assessment (BCA) of b3, its
Adjusted BCA of b2, as well as the bank's long-term
local and foreign currency Counterparty Risk Ratings (CRR) of B1 and its
long-term Counterparty Risk Assessment (CR Assessment) of B1(cr).
The bank's Not Prime short-term local and foreign currency bank
deposit ratings, Not Prime short-term local and foreign currency
CRRs and Not Prime(cr) short-term CR Assessment were also affirmed.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
--- AFFIRMATION OF THE BCA AND DEPOSIT RATINGS
The affirmation of NRB's BCA at b3 reflects the bank's strong
capital buffer which is counterbalanced by weak financial performance
and lack of business diversification. NRB's bank deposit
ratings benefit from the affiliate support from the bank's controlling
shareholder.
As of 31 December 2020, NRB's problem loans (defined as IFRS
9 Stage 3 loans) decreased to 8% of total gross loans from the
73% ratio reported as of mid-2020, owing to the sale
of a large problem loan. As of 31 December 2020, the coverage
of problem loans with loan-loss reserves was 132%,
much higher than the system average. However, NRB's strategy
envisages a rapid business expansion over 2021-23. In 2020,
the bank's gross loans increased 1.5x, underscoring
the untested quality of NRB's rapidly growing loan book. Moody's
expects NRB's problem loan ratio to reach the sector-average 10%
level when the loan growth decelerates.
NRB's capital adequacy dropped in 2020 on the back of the 2.5x
increase in risk-weighted assets, but remained solid with
the ratio of tangible common equity to risk-weighted assets at
45.8% as of 31 December 2020. NRB's business growth
will continue to consume capital. Another factor suppressing NRB's
capital is its weak operating performance. Although the bank posted
RUB84.5 million profit in 2020, the positive result was driven
by a RUB256.5 million financial gain on sale of a large problem
loan, while without this gain NRB would have reported negative return
on assets of around 1.7% for the year. The rating
agency forecasts that, absent any one-off gains, NRB
will be close to break-even in the next 12 to 18 months,
as operating income from the increased business volumes will materialize
with a lag.
NRB lacks business diversification as its loan book and customer deposit
base are highly concentrated on a small number of corporate customers.
The bank's newly developed strategy should resolve this constraint
through business expansion, but Moody's believes that,
given the fierce competition from large federal banks, the downside
risks associated with the execution of this strategy remain high.
NRB's b2 Adjusted BCA and B2 deposit ratings incorporate the rating agency's
assessment of a moderate affiliate support to NRB from its controlling
shareholder State Transport Leasing Company (JSC GTLK) (Ba1 stable).
This assumption hinges on State Transport Leasing Company (JSC GTLK)'s
ownership of a significant 81.32% share of NRB's shareholder
capital and State Transport Leasing Company (JSC GTLK)'s oversight of
NRB's strategy and business model executed through the shareholder's
majority vote in the bank's board of directors.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Governance is highly relevant for NRB, as it is to all entities
in the banking industry. NRB's b3 BCA is constrained by the
lack of clarity over its strategy execution and business development prospects.
Moody's expects NRB's controlling shareholder to refine the bank's
corporate governance framework over time, which will lead to improvements
in the latter's governance practices. Corporate governance remains
a key credit consideration for NRB and requires ongoing monitoring.
--- CHANGE OF THE OUTLOOK TO STABLE FROM POSITIVE
Moody's revision of the outlook on NRB's long-term
bank deposit ratings to stable from positive reflects the rating agency's
view that the transition of NRB to a sustainable profitable performance
may take longer than 12 to 18 months, and that any material improvements
in the bank's credit profile are remote. Furthermore,
NRB's potential strategic fit into State Transport Leasing Company (JSC
GTLK)'s core business needs to be more clearly demonstrated, as
NRB's business activities better adjust to those of its controlling shareholder.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A further expansion of NRB's business activities and improvement
in its recurring earnings generation, if coupled with prudent and
disciplined risk taking, may, over time, translate into
an upgrade of the bank's BCA and deposit ratings. Another
factor which may lead to a rating upgrade is a greater strategic fit of
NRB to its controlling shareholder, which would enable Moody's
to increase its affiliate support assumptions for the bank.
NRB's ratings may be downgraded if the bank incurs material losses,
leading to an erosion of its total capital adequacy ratio. Furthermore,
any signs of diminished support from State Transport Leasing Company (JSC
GTLK) to NRB, such as an announcement of a partial or full divestment
from the bank, could result in the downgrade of the bank's
deposit ratings.
LIST OF AFFECTED RATINGS
..Issuer: National Reserve Bank
Affirmations:
....Adjusted Baseline Credit Assessment,
Affirmed b2
....Baseline Credit Assessment, Affirmed
b3
....Long-term Counterparty Risk Assessment,
Affirmed B1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
....Long-term Counterparty Risk Ratings,
Affirmed B1
....Short-term Counterparty Risk Ratings,
Affirmed NP
.... Short-term Bank Deposit Ratings,
Affirmed NP
....Long-term Bank Deposit Ratings,
Affirmed B2, Outlook Changed To Stable From Positive
Outlook Action:
....Outlook, Changed To Stable From
Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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.
Olga Ulyanova
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Yaroslav Sovgyra, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
