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Rating Action:

Moody's assigns Counterparty Risk Assessments to 5 Russian banks and their 2 subsidiaries, affirms 4 bank ratings

23 Jun 2015

Actions reflect the aspects of the revised bank rating methodology

On July 29, 2016, the press release was corrected as follows: the LC Senior Unsecured Bank Credit Facility rating of Bank VTB, JSC was removed from the list of affected ratings. Revised release follows

NOTE: On December 30, 2015, the press release was corrected as follows: In the sixth paragraph of the REGULATORY DISCLOSURES section, changed the participating rated entity in unsolicited credit ratings disclosures to: “Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity Alfa-Bank or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process”. Revised release follows.

London, 23 June 2015 -- Moody's Investors Service has today assigned Counterparty Risk Assessments (CR Assessments) to five Russian banks and their two subsidiaries, in line with its new bank rating methodology.

At the same time, Moody's has affirmed all ratings of four Russian banks and withdrawn the outlooks on subordinated instrument for its own business reasons. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com. Outlooks, which indicate the direction of rating pressures, are now only assigned to long term senior debt and deposit ratings.

Today's actions reflect the new aspects of Moody's bank rating methodology published on 16 March 2015 see http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662.

Please refer to the end of this press release for a list of affected ratings.

RATINGS RATIONALE

AFFIRMATION OF RATINGS

Sberbank

Moody's affirmation of Sberbank's long and short-term deposit, debt, and subordinated debt ratings reflects the affirmation of its ba2 BCA, which is one of the highest among its Russian peers, and which is supported by the bank's dominant market position that gives the bank strong pricing power and a competitive edge over domestic peers, in the context of a very challenging operating environment in the country.

The asset quality trends have worsened notably with the non-performing loans ratio at 5.99% as at end-2014 compared to 4.7% end-2013 (calclucated as per Moody's standard approach). Sberbank's total capital adequacy ratio has declined recently to 12% as at end-2014 but remains comparable to similarly rated peers. In general, Moody's notes that the bank's historically strong earnings-generating capacity and internal capital creation rate support its standalone credit profile. In addition, Sberbank's funding position remains robust with limited refinancing risk in 2015.

The bank's long-term senior unsecured debt and deposit ratings benefit from Moody's assessment of very high probability of government support in case of need from the Russian government (Ba1 Negative) due to Sberbank's high systemic importance, leading to one notch uplift for its senior unsecured debt and local currency deposit ratings.

BANK VTB, JSC

Moody's affirmation of VTB's long and short-term deposit, debt, and subordinated debt ratings reflects the affirmation of b1 BCA. The bank's BCA is constrained by the challenges facing the bank due to the very volatile operating environment, stressed profitability and asset quality. At the same time Moody's notes that the funding received by the Central Bank of Russia (CBR) is an important factor stabilising its funding position and the bank has limited external refinancing needs in 2015.

In addition, the affirmation of the ratings takes into account that the bank has been the beneficiary of various government support programmes since 2014 and currently is in the process of finalising an injection of preferred shares in the amount of RUB307 billion, which will stabilise its capitalisation despite the expectation of a loss-making year in 2015.

VTB's long-term senior unsecured debt and deposit ratings benefit from a very high probability of government support in case of need from the Russian government leading to a three notch uplift for its senior unsecured debt and local currency deposit ratings.

Russian Agricultural Bank

Moody's affirmation of Russian Agricultural Bank's long and short-term deposit, senior debt and subordinated debt ratings reflects the affirmation of the bank's b3 BCA. The BCA is constrained by the bank's weak financial fundamentals, namely asset quality, capital adequacy and profitability. At year-end 2014, Russian Agricultural Bank's problem loans (defined by Moody's as loans overdue by more than 90 days and loans in the watch list category) stood at 24% of total gross loans and were only 37% covered by loan loss reserves. Russian Agricultural Bank's Basel II Tier 1 and total capital adequacy ratios, reported at 9.9% and 13.0%, respectively, as of 1 January 2015, would more than halve if the bank were to immediately raise its problem loan coverage ratio to the sector average.

As a government policy vehicle for lending to agricultural sector, the bank does not target profit maximization and is unable to replenish its capital from internal profits generation. To compensate the bank for the cost of pursuing this strategy, the government regularly injects additional capital. As part of the government's recapitalisation programme targeting large banks, Russian Agricultural Bank is expected to receive a Tier 1 capital injection of RUB68.8 billion this year.

Russian Agricultural Bank is dependent on market funding, which Moody's views as a risk in the current environment. As of year-end 2014, customer funding accounted for just 44% of the bank's total liabilities, whereas the aggregate share of wholesale market borrowings stood at 49% of the total as of the same reporting date.

Russian Agricultural Bank's long-term senior unsecured debt and deposit ratings benefit from a very high probability of government support in case of need from the Russian government, leading to a four notch uplift for its senior unsecured debt and deposit ratings.

Alfa Bank

Moody's affirmation of Alfa-Bank's long and short-term deposit, debt, and subordinated debt ratings reflects the affirmation of ba3 BCA. The affirmation is taking into account the bank's strong commercial franchise in Russia and business diversification, its strong capitalisation and manageable, although deteriorating, level of non-performing assets.

Alfa is Russia's largest privately owned banking group, with one of the largest branch networks in the country. The bank's capital position remains robust at 17.7% as at end-2014 (as calculated by the bank) and one of the highest compared with its Russian peers. Although the bank's loan-to-deposit ratio remains high at 125% as at end-2014 Alfa's liquidity buffer is adequate in the context of its customer-driven deposit funding base.

Alfa-Bank's long-term senior unsecured debt and deposit ratings benefit from a moderate probability of government support in case of need from the Russian government leading to a one notch uplift for its senior unsecured debt and deposit ratings.

--- ASSIGNMENT OF CR ASSESSMENTS

Moody's has also assigned CR Assessments to five Russian banks and their two subsidiaries. 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.

In assigning the CR Assessment, Moody's evaluates the issuer's standalone strength and the likelihood, should the need arise, of affiliate and government support, as well as the anticipated seniority of counterparty obligations under Moody's Loss Given Failure framework. The CR Assessment also assumes that authorities will likely take steps to preserve the continuity of a bank's key operations, maintain payment flows, and avoid contagion should the bank enter a resolution.

In most cases, the starting point for the CR Assessment is one notch above the bank's Adjusted Baseline Credit Assessment (BCA), to which Moody's then typically adds the same notches of government support uplift as applied to deposit and senior unsecured debt ratings. As a result, the CR Assessment for most Russian banks is at the same level or one notch above the supported senior debt and deposit ratings, reflecting Moody's view that authorities are likely to honour the operating obligations the CR Assessment refers to in order to preserve a bank's critical functions and reduce potential for contagion.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Given the negative outlooks on the ratings of these entities an upward pressure is unlikely to emerge in the near term. A further unexpected severe deterioration in the operating environment and/or the solvency and liquidity positions of these banks would lead to a downward adjustment on these ratings.

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 AFFECTED RATINGS

Issuer: Alfa-Bank

.... Adjusted Baseline Credit Assessment , Affirmed ba3

.... Baseline Credit Assessment , Affirmed ba3

.....Long-Term Deposit Ratings , Affirmed Ba2 Negative

.... Short-Term Deposit Rating, Affirmed NP

.....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative

.....Subordinate Regular Bond/Debenture, Affirmed B1

.....Subordinate Regular Bond/Debenture, Affirmed B2 (hyb)

.....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative

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

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

....Outlook, Negative

Issuer: Bank VTB, JSC

....Adjusted Baseline Credit Assessment , Affirmed b1

....Baseline Credit Assessment , Affirmed b1

....Long-Term Deposit Rating (Foreign Currency) , Affirmed Ba2 Negative

....Long-Term Deposit Rating (Local Currency) , Affirmed Ba1 Negative

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

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

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

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

....Subordinate Medium-Term Note Program, Affirmed (P)Ba3

....Short-Term MTN Program, Affirmed (P)NP

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

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

....Outlook, Negative

Issuer: Sberbank

.... Adjusted Baseline Credit Assessment , Affirmed ba2

.... Baseline Credit Assessment , Affirmed ba2

.....Long-Term Deposit Rating (Foreign Currency) , Affirmed Ba2 Negative

.....Long-Term Deposit Rating (Local Currency) , Affirmed Ba1 Negative

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

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

.....Subordinate Regular Bond/Debenture, Affirmed Ba2

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

.....Subordinate Medium-Term Note Program, Affirmed (P)Ba2

.....Short-Term MTN Program, Affirmed (P)NP

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

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

....Outlook, Negative

Issuer: Russian Agricultural Bank

.... Adjusted Baseline Credit Assessment , Affirmed b3

.... Baseline Credit Assessment , Affirmed b3

.....Long-Term Deposit Ratings , Affirmed Ba2 Negative

.... Short-Term Deposit Rating, Affirmed NP

.....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative

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

.....Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2

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

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

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

....Outlook, Negative

Issuer: SME Bank

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

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

Issuer: VTB Bank (Deutschland) AG

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

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

Issuer: VTB24

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

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

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 following rating Debt number 824469930 assigned to Alfa-Bank was not initiated or not maintained at the request of the rated entity.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity Alfa-Bank or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process

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.

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 Lemay
MD-Banking & Sovereign
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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