London, 01 November 2017 -- Moody's Investors Service, ("Moody's") has
today assigned the following ratings to Armenia-based Converse
Bank CJSC (Converse Bank): B2 long-term and NP short-term
local- and foreign-currency deposit ratings, b2 baseline
credit assessment (BCA) and adjusted BCA, and B1(cr) long-term
and NP(cr) short-term Counterparty Risk Assessment (CR Assessment).
The long-term deposit ratings carry a stable outlook.
A full list of assigned ratings can be found at the end of this press
release.
RATINGS RATIONALE
The B2 long-term deposit ratings assigned to Converse Bank incorporates
its b2 Baseline Credit Assessment and reflects the bank's: (1) solid
loss absorption capacity as evidenced by its high capital adequacy and
sound profitability; (2) adequate funding and liquidity profiles;
and (3) strong financial and business support from the bank's Argentinean
shareholder of Armenian origin. At the same time, Converse
Bank's ratings are constrained by the bank's rapidly growing loan book,
which could put pressure on its asset quality upon seasoning, as
well as high share of foreign-currency exposure.
Converse Bank's current asset quality indicators are robust with
problem loans (which include impaired corporate loans, plus retail
loans overdue by more than 90 days) amounting to 5.5% of
gross loans as of 1 July 2017 (down from 6.2% as of end-
2016), and are adequately covered by loan loss reserves at 60%
as of H1 2017. Converse Bank is targeting annual loan book growth
of around 25% in 2017-2019, with the focus on SME
and retail segment. It has already increased its loan book by 15%
in the first half 2017. Although the current rebound in the Armenian
economy (Moody's forecasts GDP growth of 4.5% in 2017)
suggests better operating conditions for new lending prospects,
Moody's views such bank's growth strategy as aggressive.
Asset quality might come under pressure upon seasoning and must be tested
by time. In addition, exposure to foreign-currency
denominated loans accounted for high 78% of total loans as of end-2016,
a level that is, although typical for many Armenian banks,
renders asset quality vulnerable to potential FX volatility.
Converse Bank's capital adequacy was recently supported by a Tier
1 capital injection of AMD9.5 billion in 2016, following
tightened regulatory minimum capital requirements of AMD30 billion for
Armenian banks. Bank's Tier 1 and total capital adequacy
ratios (CAR) under Basel II amounted to 15.4% and 19.4%
as of 1 July 2017, having marginally decreased from the beginning
of the year amid active loan growth. Good internal capital generation,
with annualized return on average assets (ROAA) of 1.5%
in H1 2017, also contributes to the bank's capital buffer.
In addition, shareholder is committed to providing support to the
bank, which underpins Moody's view of the bank's sound
loss absorption capacity.
The bank also benefits from business inflows thanks to its shareholders'
connections. Related-party loans to the shareholders'
business abroad are backed by deposits and are thus risk free, but
generate sound margins, supporting bank's profitability.
Around 70% of related-party loans are cash covered by shareholder's
deposits with net related-party exposure amounting to 20.8%
of shareholders' equity as of 1 July 2017.
Moody's expects Converse Bank's recurring profitability to
strengthen further, supported by an improving interest margin,
given the focus on high-yielding products and declining funding
cost. In addition, fees and commissions provide a stable
revenue source generating around 30% of the bank's pre-provision
earnings, supported by Converse Collection and Converse Transfer
companies.
Converse Bank's funding and liquidity profiles are adequate with
moderate deposit concentrations and a low reliance on market funding of
about 11% of assets as of 1 July 2017. Around 80%
of the bank's liabilities are represented by customer accounts,
half of which are retail deposits. The bank also benefits from
servicing suppliers of Yerevan airport and pensions inflows through post
offices. The liquidity cushion provides an ample buffer against
potential outflows and amounted to 30% of assets as of 1 July 2017.
Moody's expects that further lending growth might result in a gradual
depletion of the liquidity cushion.
STABLE OUTLOOK
The stable outlook ratings reflects Moody's expectations of the bank's
stable performance over the next 12-18 months. It balances
the bank's currently adequate solvency profile and shareholders'
potential support with the asset quality risks from rapid loan growth
and high foreign-currency exposure.
WHAT COULD MOVE THE RATING UP/DOWN
Positive rating action might be considered following further strengthening
of bank's financial performance with demonstrated good asset quality
despite rapid loan growth, decreased FX exposure, maintained
solid capital buffer and liquidity cushions.
Conversely, negative pressure could be exerted on Converse Bank's
ratings in the case of a material deterioration of the bank's asset quality,
capital erosion and/or liquidity shortage.
LIST OF ASSIGNED RATINGS
Issuer: Converse Bank CJSC
Assignments:
....LT Bank Deposits, Assigned B2 Stable
....ST Bank Deposits, Assigned NP
....Adjusted Baseline Credit Assessment,
Assigned b2
....Baseline Credit Assessment, Assigned
b2
....LT Counterparty Risk Assessment,
Assigned B1(cr)
....ST Counterparty Risk Assessment,
Assigned NP(cr)
Outlook Actions:
....Outlook, Assigned 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.
Maria Malyukova
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
