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Rating Action:

Moody's affirms deposit and debt ratings of Credit Europe Bank Ltd; stable outlook

26 Oct 2017

BCA upgraded to b1 from b2; Probability of affiliate support now low

London, 26 October 2017 -- Moody's Investors Service (Moody's) has today affirmed the long-term and short-term deposit ratings of Russia's Credit Europe Bank Ltd. (CEBL) at B1 and Not Prime respectively, its senior unsecured debt rating of B1 and subordinated debt rating of B2, CEBL's long-term and short-term CR assessments of Ba3(cr) and Not Prime(cr). Concurrently, Moody's upgraded the bank's baseline credit assessment (BCA) to b1 from b2 and affirmed adjusted BCA of b1.

The outlook on the long term bank deposit and senior unsecured debt ratings remains stable.

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

RATINGS RATIONALE

The upgrade of the bank's BCA to b1 is primarily driven by the bank's: (1) material improvement in its funding profile with increasing amounts of deposits and decreased reliance on market funding; (2) strong loss absorption capacity; (3) resilient financial performance during challenging economic conditions in recent years and, Moody's expectation that such performance will improve over the next 12-18 months supported by a gradual economic recovery in Russia in 2017-18.

In 2016-2017, CEBL materially improved its funding profile, strengthening its deposit base (which almost doubled since the end of 2015) and continues to decrease reliance on market funding, thereby reducing refinance risk which was the key negative factor constraining the bank's BCA in recent years. During this period, CEBL's market funds ratio declined to 12% as at 30 June 2017 from 49% at year-end 2015 and Moody's expects that customer deposits will remain the key funding source for the bank going forward.

CEBL's strong loss absorption is a relative credit strength for the bank, which has improved in recent years, supported by the robust capital buffers, good income generating capacity and adequate provisioning coverage. At the end of June 2017, CEBL reported TCE ratio of 18.2% (increased from 13.8% at the end of 2015 as risk weighted assets materially decreased), and Moody's expects its capital adequacy to remain solid and sufficient to support future growth in the long term, underpinned by its internal capital generation.

CEBL's credit profile proved resilient to challenging economic conditions in Russia in recent years. The bank's asset quality indicators stabilized in 2016 and gradually improved in 2017. The share of problem loans in total loans, which include impaired corporate loans and past due by more than 90 days retail loans, decreased to 7.7% as of the end June 2017 from 8.5% in 2016 (11.8% as of year-end 2015) and were sufficiently covered by loan loss reserves. Given a stable operating environment (with the Russian economy returning to modest growth), Moody's expects CEBL to maintain its improved financial metrics in the coming years and the quality of the new loans will be satisfactory.

Moody's has revised its assumption for affiliate support from CEBL's immediate Dutch parent, Credit Europe Bank N.V. (CEB NV, LT bank deposits Ba2 review for upgrade ; BCA b1 review for upgrade), to low from high, following the announcement that CEB NV will transfer 90% of its shares in its Russian subsidiary CEBL to its parent Fiba Holding AS (not rated). As a result, CEBL's deposit and senior debt ratings are aligned with its BCA of b1 and do not incorporate any rating uplift, reflecting our assumption that there is now a low likelihood that the bank would receive a direct support from CEB NV.

WHAT COULD MOVE THE RATINGS UP/DOWN

The stable outlook on CEBL's long-term deposit ratings indicates there is currently no expectation of particular upward or downward pressure on the ratings over the next 12-18 months. However, in the longer term, a positive rating action could result from a material strengthening of the bank's market franchise and further improvement in its asset quality metrics. At the same time the ratings could be downgraded if the bank's risk absorption capacity and financial fundamentals erode beyond Moody's current expectations.

LIST OF AFFECTED RATINGS

Issuer: Credit Europe Bank Ltd.

Upgrades:

....Baseline Credit Assessment, Upgraded to b1 from b2

Affirmations:

....LT Bank Deposits, Affirmed B1, Outlook Remains Stable

....ST Bank Deposits, Affirmed NP

....Senior Unsecured Regular Bond/Debenture, Affirmed B1, Outlook Remains Stable

....Subordinate, Affirmed B2

....Adjusted Baseline Credit Assessment, Affirmed b1

....LT Counterparty Risk Assessment, Affirmed Ba3(cr)

....ST Counterparty Risk Assessment, Affirmed NP(cr)

Outlook Actions:

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies 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 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.

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.

Lev Dorf
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
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
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

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