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Rating Action:

Moody's assigns B3/NP/E+ ratings to Autotorgbank; stable outlook

10 Dec 2012

London, 10 December 2012 -- Moody's Investors Service has today assigned the following first-time ratings to "Autotorgbank" Limited Company: E+ standalone bank financial strength rating (BFSR), equivalent to a standalone credit assessment of b3; B3 long-term local and foreign currency deposit ratings; and Not Prime short-term local and foreign currency deposit ratings. All the bank's long-term deposit ratings carry a stable outlook.

The rating action is based on Autotorgbank's audited IFRS accounts for 2011, 2010 and 2009, statutory accounts as at end-October 2012, and information provided by the bank's management.

RATINGS RATIONALE

According to Moody's, Autotorgbank's ratings are constrained by the following: (1) high concentrations in the loan book and deposit base (with the bulk of deposits received from its main owner, Major Group); (2) potential corporate governance risks reflected in the bank's captive nature; and (3) limited track record of operations under the current ownership and strategy. At the same time, Autotorgbank's ratings are supported by its solid reported capitalisation, good asset quality indicators, and reasonable liquidity reflected in a high share of liquid assets.

Moody's notes Autotorgbank's significant dependence on funding from the parent group (Major). Autotorgbank is the main settlement bank for its majority owner -- Major Group -- one of the largest car traders in Russia. As a result of its captive nature, the bank benefits from cheap funding from its parent group which accounted for over 60% of deposit funding at end-Q3 2012. In addition, over 10% of deposit funding is related to business partners of the parent. This cheap funding and a large capital base confer a competitive advantage to Autotorgbank in terms of pricing of corporate loans which grew rapidly over the past three years. However, the bank's loan book remains concentrated, with the top 20 borrowers accounting for over 95% of corporate lending.

Autotorgbank's related-party lending has been low to date (at less than 20% of Tier 1 capital); however, Moody's notes there are risks associated with the bank's captive nature which raise concerns regarding the possibility of servicing any urgent needs of the group if other options are unavailable.

Moody's also notes the limited track record of operations under the current ownership and strategy: Autotorgbank's franchise started to grow rapidly after the acquisition of the bank by the current owners in 2007.

Autotorgbank's profitability has been modest to date, due to strong and rapid loan growth leading to high provision charges: significant loan loss reserves resulted in return on assets (ROA) below 1%. At the same time, if reserves are excluded, the healthy net interest margin of over 6% would have resulted in ROA of over 3%.

Moody's notes the commitment of Autotorgbank's owners to capitalising the bank -- which provided $30 million of Tier 2 capital during 2009-11 and RUB500 million of Tier 1 in 2011. These capital injections resulted in a strong capital adequacy ratio of over 35%. According to Autotorgbank's owners, the new capital support is likely to support growth, especially given the bank's size compared with the group's financial flexibility.

In Moody's opinion, cheap parental funding and a high capital base enables Autotorgbank to operate in a lower-risk segment compared to peers (mainly lending for operational purposes). As a result, historic losses during the last several years did not exceed 1% of the loan book. In addition, Autotorgbank's liquidity is reasonable because the bank has an ample liquidity cushion (over 90% of demand deposits) given its role as one of the main settlement banks for its parent.

WHAT COULD MOVE THE RATINGS UP / DOWN

Moody's says an upgrade Autotorgbank's ratings is unlikely in the near term. However, upward pressure could be exerted on the ratings as a result of successful growth and diversification of business, especially by growing business unrelated to its majority owner, accompanied by improvement in profitability and maintenance of financial indicators at adequate levels. A downgrade is not expected in the near term; however, downward pressure could be exerted on the ratings (1) as a result of loss of franchise, including evidence of diminished competitive advantage, caused, in turn, by lower levels of funding and capital support from the parent group; and (2) as a result of deterioration of financial fundamentals. Any liquidity problems could also have negative rating implications.

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in, Moscow, Russia, "Autotorgbank" Limited Company reported (audited IFRS) total assets of RUB6.2 billion ($194 million) and shareholder's equity of RUB1.4 billion ($44 million) as at end-December 2011. The bank's net income totalled RUB36 million ($1.1 million) in 2011.

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.

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Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

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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.

Vladlen Kuznetsov
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
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Yves J Lemay
MD - Banking
Financial Institutions Group
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Moody's assigns B3/NP/E+ ratings to Autotorgbank; stable outlook
No Related Data.
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