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Rating Action:

Moody's assigns Counterparty Risk Assessments to 23 Russian banks; affirms 5 banks' ratings

17 Jun 2015

London, 17 June 2015 -- Moody's Investors Service, (Moody's) has today assigned Counterparty Risk Assessments (CR Assessments) to 23 Russian banks. This announcement follows the publication of the rating agency's revised bank rating methodology (see "Banks" published on 16 March 2015).

Concurrently, Moody's affirmed the credit ratings of Bank Otkritie Financial Corporation PJSC, Bank Saint-Petersburg PJSC, Credit Europe Bank Ltd., Tinkoff Bank and TranscapitalBank JSC Bank. The outlooks on the long-term deposit and senior unsecured debt ratings remain negative for all five banks. At the same time, Moody's has withdrawn the outlooks on all five banks' subordinated debt ratings for its own business reasons. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings on www.moodys.com.

Please click here to access Moody's revised bank rating methodology (see "Banks," published on 16 March 2015) https://www.moodys.com/research/Banks--PBC_179038.

RATINGS RATIONALE

BANK OTKRITIE FINANCIAL CORPORATION PJSC

Moody's has affirmed Bank Otkritie Financial Corporation's b1 baseline credit assessment (BCA) and adjusted BCA, Ba3/Not-Prime local and foreign-currency deposit and senior unsecured debt ratings and B2 subordinated debt rating. The affirmation reflects the bank's reasonable asset quality, sufficient loss-absorption capacity and liquidity cushion, which is sufficient to manage the bank's refinancing needs. At the same time, Russia's deteriorated operating environment constrains the ratings, because it pressures the bank's asset quality and profitability, as does the high single-name concentration in its loan portfolio and deposits.

The bank's lending to high-risk sectors (construction, real estate, development and small and medium-sized enterprises) accounted for 15% of gross loans as of year-end 2014, which exposes the bank to elevated credit risk, rendering the loan book vulnerable to the weakening domestic operating environment and adverse market conditions. Moody's notes the capital levels will only partly mitigate the pressures for the macroeconomic headwinds in 2015 and 2016: the reported tier 1 and total capital adequacy ratio (CAR) were 8.3% and 12.4%, respectively, at year-end 2014. The bank reported regulatory total CAR (N1.0) and tier 1 (N1.2) ratios at 12.06% and 9.17% as of 1 May 2015. Moody's notes the Deposit Insurance Agency provided a subordinated loan of RUB55.6 billion to the bank in June 2015 in the form of state securities in the framework of a recapitalization plan for Russian government bonds (OFZ), which should underpin the bank's total CAR (N1.0) by 450-500 basis points.

The rating agency incorporates a low likelihood of government support for the bank based on its growing systemic importance as Russia's leading private banking group, with a market share of 4.5% of assets as of year-end 2014 and an extensive domestic presence. The government support assessment results in a one-notch rating uplift from the bank's adjusted BCA of b1.

BANK SAINT-PETERSBURG PJSC

Moody's has affirmed Bank Saint Petersburg's b1 BCA and adjusted BCA, B1/Not-Prime foreign-currency deposit ratings, (P)B1 foreign-currency senior unsecured MTN program debt rating, B2 subordinated debt rating and (P)B2 subordinate MTN program debt rating. The affirmations reflect (1) challenging credit conditions in Russia that exert pressure on the bank's asset quality, profitability and capital adequacy; (2) the bank's comfortable liquidity profile, which is supported by stable deposit-based funding; and (3) a diversified business profile with a strong market position in its home region of St. Petersburg. In Q1 2015, growing credit costs negatively affected the bank's performance: provisioning expenses accounted for 3% (annualised) of the average loan book, along with increased funding costs (up by 46% compared to Q4 2014). This resulted in a remarkable drop in net income. The return on average assets (RoAA) decreased to 0.4% (annualised) from 1.6% year-on-year and return on equity (RoE) decreased to 4.4% (annualised) from 14.0%, respectively.

The long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift.

CREDIT EUROPE BANK LTD.

Moody's has affirmed Credit Europe Bank's b2 BCA and b1 adjusted BCA, B1/Not-Prime local and foreign-currency deposit ratings, B1 senior unsecured debt and B2 subordinated debt ratings. The affirmations reflect the bank's track record of good asset performance, healthy capital adequacy and strong pre-provision income. These factors enable the bank to absorb credit losses. At the same time, the expected deterioration in asset quality and profitability continue to constrain the ratings amid a challenging operating environment and increased reliance on short-term funding. In 2014, the bank reported a net financial result of RUB1.2 billion, which translates into RoAA of 0.8% and RoE of 5.8%.

Moody's believes the recent surge in Russia's CBR key interest rate has already adversely affected funding costs. This reduced the bank's net interest margin (NIM) - and consequently its operating revenues - in Q1 2015. This trend may continue until it stabilises in the second half of the year. Concurrently, the rating agency acknowledges the bank's ability to manage liquidity and refinancing risks in stressed market conditions, and efficiently cut operating costs to underpin its financial results. Moody's considers that the bank will come close to breaking even in 2015, unless new external shocks materialise.

The ratings incorporate our assessment of a high probability of affiliate support from the bank's immediate Dutch parent, Credit Europe Bank N.V. (Ba2 negative), given the significant financial and key strategic importance of the Russian business for the parent company. At the current rating level, the bank's long-term rating incorporates a rating uplift above the rating on the parent company. The bank therefore benefits from a one-notch uplift above the bank's BCA of b2.

The long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift.

TINKOFF BANK

Moody's has affirmed Tinkoff Bank's b2 BCA and adjusted BCA, B2/Not-Prime local and foreign-currency deposit ratings, B2 senior unsecured debt ratings and B3 subordinated debt rating. The affirmations reflect the bank's healthy capital cushion, strong revenue generation and sufficient liquidity buffer. At the same time, the monoline nature of the bank's operations and the pressure on the bank's asset quality and profitability continue to constrain the ratings. These underlying factors follow the weakening of borrowers' creditworthiness in light of a sharp economic contraction and high interest rates.

In Q1 2015, the dramatic 30.4% increase in interest expenses compared with Q1 2014 hampered the bank's performance. Along with annualised credit costs of 17.9% and one-off foreign currency losses (incurred in January 2015), the bank produced negative financial results in Q1 2015 of RUB193.0 million. Concurrently, the rating agency notes that the bank's liquidity cushion improved, amounting to 21% of assets as of Q1 2015. These assets were in the form of cash, cash equivalents and unpledged securities eligible for repo with the central bank. Moody's expects the pressure from funding costs to weaken in the second half of 2015, which might improve the bottom-line result and help the bank to break even in 2015.

The long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift.

TRANSCAPITALBANK JSC BANK

Moody's has affirmed Transcapitalbank JSC Bank's b1 BCA and adjusted BCA, B1/Not-Prime foreign-currency deposit ratings and B2 subordinated debt rating. The affirmations reflect the bank's good capital adequacy, diversified funding structure and adequate liquidity buffer. At the same time, the expected deterioration in asset quality and profitability amid a challenging operational environment continue to constrain the ratings. The adverse impact is augmented by the bank's exposure to the SME sector, amounting to 35% of gross portfolio at year-end 2014. We consider that this sector could be particularly vulnerable to deterioration in challenging economic conditions.

In 2014, the bank reported a net income of RUB1.8 billion under IFRS. This figure translates into a moderate, but declining ROAA of 1.2%, down from 1.7% in 2013 and 1.8% in 2012. Given the bank's high funding and credit costs, the bank may just break-even in 2015, in Moody's view. At the same time, the bank's provisions and capital buffers provide a sufficient cushion to absorb potential credit losses stemming from increased pressure on the loan book's credit quality: the reported tier 1 and total CAR stand at 10.7% and 14.5%, respectively, as of year-end 2014. A recent maturity extension of US$100 million subordinated Eurobonds from 2017 to 2020 under Basel III rules should underpin Tier 2 capital and add up around 190 basis points to total CAR.

The long-term deposit ratings do no benefit from any government support uplift.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The negative outlooks on these banks' long-term deposit and debt ratings imply that upward rating pressure is limited. The outlook on the long-term ratings could be changed to stable if the banks improve their profitability and asset-quality metrics, while increasing their capital levels or maintaining them at adequate levels.

Downward rating pressure could emerge if (1) the already unfavorable operating environment in Russia further deteriorates, putting additional systemic-wide pressure on the banks' asset quality, profitability and capital adequacy ratios; and/or (2) the individual financial performance of the abovementioned banks becomes detrimental for their credit profiles.

RATIONALE FOR CR ASSESSMENTS

Moody's has also assigned CR Assessments to 23 banks. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than expected loss and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

For Russian banks, the CR Assessment is positioned, prior to government support, one notch above the Adjusted BCA and therefore above senior unsecured and deposit ratings, reflecting Moody's view that its probability of default is lower than that of senior unsecured debt and deposits. Moody's believes that senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.

None of 23 CR Assessments benefits from any government support, in line with our support assumptions on deposits and senior unsecured debt. This reflects our view that operating activities and obligations reflected by the CR Assessment are unlikely to benefit from any support provisions from resolution authorities to senior unsecured debt or deposits.

At the same time, the rating agency assigned Prime-3(cr) short-term CR Assessments to JSB Rosbank and DeltaCredit Bank, and Not-Prime(cr) short-term CR Assessments to the other 21 banks.

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

LIST OF CR ASSESSMENTS

..Issuer: Absolut Bank

.... Counterparty Risk Assessment, Assigned Ba3(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Aljba Alliance Commercial Bank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Asian - Pacific Bank

.... Counterparty Risk Assessment, Assigned B1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Banca Intesa (Russia)

.... Counterparty Risk Assessment, Assigned Ba1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Bank Otkritie Financial Corporation PJSC

.... Counterparty Risk Assessment, Assigned Ba3(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Bank Saint-Petersburg PJSC

.... Counterparty Risk Assessment, Assigned Ba3(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: CB Kuban Credit Ltd

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Credit Europe Bank Ltd.

.... Counterparty Risk Assessment, Assigned Ba3(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: DeltaCredit Bank

.... Counterparty Risk Assessment, Assigned Baa3(cr)

.... Counterparty Risk Assessment, Assigned Prime-3(cr)

..Issuer: Finprombank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: First Czech Russian Bank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: IBA-Moscow

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Investment Trade Bank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Joint Stock Commercial Bank Avangard

.... Counterparty Risk Assessment, Assigned B1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: JSB Rosbank

.... Counterparty Risk Assessment, Assigned Baa3(cr)

.... Counterparty Risk Assessment, Assigned Prime-3(cr)

..Issuer: Metallinvestbank JSCB

.... Counterparty Risk Assessment, Assigned B1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: National Standard Bank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: NK Bank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Petersburg Social Commercial Bank

.... Counterparty Risk Assessment, Assigned B1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Rosenergobank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Russlavbank

.... Counterparty Risk Assessment, Assigned B2(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: Tinkoff Bank

.... Counterparty Risk Assessment, Assigned B1(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

..Issuer: TranscapitalBank JSC Bank

.... Counterparty Risk Assessment, Assigned Ba3(cr)

.... Counterparty Risk Assessment, Assigned Not-Prime(cr)

LIST OF AFFIRMED RATINGS

..Issuer: Bank Otkritie Financial Corporation PJSC

.... Adjusted Baseline Credit Assessment, Affirmed b1

.... Baseline Credit Assessment, Affirmed b1

.... LT Bank Deposits, Affirmed Ba3 Negative

.... ST Bank Deposits, Affirmed Not-Prime

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 Negative

....Subordinate Regular Bond/Debenture, Affirmed B2

.. Issuer: Bank Saint-Petersburg PJSC

.... Adjusted Baseline Credit Assessment, Affirmed b1

.... Baseline Credit Assessment, Affirmed b1

.... LT Bank Deposits, Affirmed B1 Negative

.... ST Bank Deposits, Affirmed Not-Prime

.... Senior Unsecured Medium-Term Note Program, Affirmed (P)B1

.... Subordinate Regular Bond/Debenture, Affirmed B2

.... Subordinate Medium-Term Note Program, Affirmed (P)B2

..Issuer: Credit Europe Bank Ltd.

.... Adjusted Baseline Credit Assessment, Affirmed b1

.... Baseline Credit Assessment, Affirmed b2

.... LT Bank Deposits, Affirmed B1 Negative

.... ST Bank Deposits, Affirmed Not-Prime

.... Senior Unsecured Regular Bond/Debenture, Affirmed B1 Negative

.... Subordinate Regular Bond/Debenture, Affirmed B2

.. Issuer: Tinkoff Bank

.... Adjusted Baseline Credit Assessment, Affirmed b2

.... Baseline Credit Assessment, Affirmed b2

.... LT Bank Deposits, Affirmed B2 Negative

.... ST Bank Deposits, Affirmed Not-Prime

.... Senior Unsecured Regular Bond/Debenture, Affirmed B2 Negative

.... Subordinate Regular Bond/Debenture, Affirmed B3

.. Issuer: TranscapitalBank JSC Bank

.... Adjusted Baseline Credit Assessment, Affirmed b1

.... Baseline Credit Assessment, Affirmed b1

.... LT Bank Deposits, Affirmed B1 Negative

.... ST Bank Deposits, Affirmed Not-Prime

.... Subordinate Regular Bond/Debenture, Affirmed B2

Outlook Actions:

..Issuer: Bank Otkritie Financial Corporation PJSC

....Outlook, Remains Negative

..Issuer: Bank Saint-Petersburg PJSC

....Outlook, Remains Negative

..Issuer: Credit Europe Bank Ltd.

....Outlook, Remains Negative

..Issuer: Tinkoff Bank

....Outlook, Remains Negative

..Issuer: TranscapitalBank JSC Bank

....Outlook, Remains Negative

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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating as indicated:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

Petr Paklin
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 & Sovereign
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
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Moody's assigns Counterparty Risk Assessments to 23 Russian banks; affirms 5 banks' ratings
No Related Data.
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