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Rating Action:

Moody's changes outlook on Bank Saint-Petersburg's B1 deposit rating to positive

23 Aug 2018

London, 23 August 2018 -- Moody's Investors Service has today changed to positive from stable the outlook on the B1 long-term foreign currency deposit rating of Russia-based Bank Saint-Petersburg PJSC (BSPB) and affirmed this rating. Concurrently, the rating agency affirmed BSPB's Baseline Credit Assessment (BCA) and adjusted BCA of b1, the bank's long-term and short-term local and foreign currency Counterparty Risk Ratings of Ba3/Not Prime, as well as its Not Prime short-term foreign currency deposit rating. BSPB's long-term and short-term Counterparty Risk Assessments (CR Assessments) of Ba3(cr)/Not Prime(cr) were also affirmed.

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

RATINGS RATIONALE

According to Moody's, the change of BSPB's rating outlook to positive from stable reflects improving trends in the bank's asset quality and profitability, coupled with its relatively good capital buffer. The rating action is also underpinned by the bank's stable funding and liquidity profiles.

BSPB's problem loan ratio declined to 11.4% as of 31 March 2018 from 14.1% reported as of year-end 2017 and the coverage of problem loans by loan-loss reserves improved to 91% from 78% over the same period because of the implementation of IFRS 9 starting from 1 January 2018. Moody's estimates that BSPB's coverage ratio is five to 10 percentage points above the sector average. The rating agency expects the bank's asset-quality metrics to continue improving gradually over the next 12 to 18 months.

In the first quarter of 2018, BSPB posted RUB1.8 billion in net profit under IFRS, which translated into an annualised return on average assets of 1.2% (2017: 1.3%). The bank's bottom-line profitability is underpinned by a gradual decline in credit losses, measured as loan-loss provisions as a percentage of average gross loans, which fell to 2.0% in the first quarter of 2018 (annualised) from 2.7% in 2017 and 3.4% in 2016. Another factor supporting the bank's bottom-line result is its historically strong cost efficiency, with its cost-to-income ratio hovering around 40% over the past five years. BSPB's net interest margin (NIM), although relatively moderate at around 3.5% (a reflection of the bank's focus on relatively low-risk and hence low-yielding loans to big corporates and mortgages), proved to be less susceptible to low economic cycles compared to the sector-average NIM, as demonstrated through the 2015-16 financial crisis. Moody's expects BSPB's profitability to continue benefiting from a further steady decline in credit losses over the next 12-18 months because most of the bank's problem loans have crystallised and have already been adequately provisioned.

BSPB's capital adequacy benefits from the bank's sustainable internal capital generation and the modest growth in its risk-weighted assets. The bank's regulatory total capital adequacy ratio of 14.7% and its Tier 1 ratio of 10.2% reported as of 1 July 2018 incorporate comfortable buffers over the regulatory minimum thresholds of 8.0% and 6.0%, respectively. In August 2018, BSPB announced a buyback of its shares for RUB660 million, however the rating agency estimates that this transaction will have very little effect of about 12 basis points on BSPB's capital ratios and these ratios will remain broadly stable over the next 12-18 months.

BSPB displays stable funding and liquidity profiles as it benefits from the entrenched market position and strong brand recognition in its domicile City of St. Petersburg and the surrounding Leningrad Oblast. As of 31 March 2018, core customer funding accounted for 65% of the bank's total non-equity funding, with the proportion of granular retail deposits at around 60% of total customer funding. BSPB's liquidity buffer is robust, with cash, cash equivalents, dues from banks and unencumbered liquid securities together comprising around 30% of the bank's total assets as of 31 March 2018.

WHAT COULD MOVE THE RATINGS UP / DOWN

Moody's might upgrade BSPB's deposit rating if it observes continuing further improvement in the bank's asset quality and profitability metrics, coupled with its sustainable good capital buffer and stable funding and liquidity positions.

BSPB's ratings might be downgraded, or the rating outlook might be revised to stable from positive, in case of the bank's failure to sustain the long-term improving trends in its solvency metrics, in contrast with Moody's current central scenario expectations.

LIST OF AFFECTED RATINGS

Issuer: Bank Saint-Petersburg PJSC

..Affirmations:

....Adjusted Baseline Credit Assessment, affirmed b1

....Baseline Credit Assessment, affirmed b1

....Short-term Counterparty Risk Assessment, affirmed NP(cr)

....Long-term Counterparty Risk Assessment, affirmed Ba3(cr)

....Short-term Counterparty Risk Ratings, affirmed NP

....Long-term Counterparty Risk Ratings, affirmed Ba3

....Long-term Bank Deposits, affirmed B1, outlook changed to Positive from Stable

....Short-term Bank Deposits, affirmed NP

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

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

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

..Outlook Actions:

....Outlook changed to Positive from Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in the City of St. Petersburg, Russia, BSPB reported -- at 31 March 2018 - total assets of RUB603 billion and total shareholders' equity of RUB70.5 billion, according to its unaudited financial statements prepared under IFRS. BSPB's net IFRS profits for the first quarter of 2018 was RUB1.8 billion; the bank's IFRS profit in 2017 was RUB7.5 billion.

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.

Olga Ulyanova
VP - Senior Credit Officer
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

No Related Data.
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