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06 Jun 2012
London, 06 June 2012 -- Moody's Investors Service has today changed to negative from stable the
outlook on the D standalone bank financial strength rating ("BFSR") and
Ba2 long-term global local and foreign currency deposit ratings
of MDM Bank (Russia). Moody's also changed the outlook on
MDM Bank's Ba2 local currency senior unsecured debt rating to negative
from stable. The bank's Not Prime short-term local
and foreign currency deposit ratings were affirmed.
Moody's revision of the outlook on MDM Bank's ratings is primarily
based on the bank's audited financial statements for 2011 prepared
The revision of the outlook on MDM Bank's ratings reflects Moody's
concerns regarding the bank's weak financial performance and poor
asset quality that have emerged as new lending activity stagnates.
MDM Bank's net comprehensive loss of RUB6.9 billion (US$214
million) posted in 2011 was mainly driven by high loan loss provisions
which amounted to 4.6% of the average gross loan book in
2011 -- a much higher level compared to other large Russian banks.
Furthermore, the bank's recurring income generation has also
weakened in recent years, reflecting the reduction of the bank's
interest-earning assets. MDM Bank's cost-to
income-ratio also deteriorated to 73% in 2011 from 65%
in 2010 as its deleveraging activity was not sufficiently offset by reduced
"The deterioration of MDM Bank's asset quality was amplified
by material loan book shrinkage, while most of the bank's
competitors resumed new lending growth. Consequently, the
bank's asset quality ratios approached levels that are weaker than
those of peers: at year-end 2011, 24% of MDM
Bank's total loans were either overdue by more than 90 days or restructured,
and one half of these loans comprised seasoned problem loans overdue by
more than one year for which we expect low recovery rates",
said Olga Ulyanova, a Moody's Vice President and lead analyst for
the bank. "In this context, the loan loss reserves
of 15.3% of the total gross loan book accumulated at year-end
2011 appear insufficient to us," Ms Ulyanova added.
The rating agency notes that MDM Bank's capital adequacy (the bank
reported Basel I Tier 1 and total capital adequacy ratios of 16.2%
and 17.8%, respectively, at year-end
2011) remains one of the strongest factors underpinning the bank's
ratings, as the capital levels provide a sufficient buffer to absorb
further losses over the outlook horizon. At the same time,
Moody's cautions that the bank's weak financial performance
may lead to further capital erosion in the long-term.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's may downgrade MDM Bank's ratings if it witnesses no
material improvement in the bank's financial performance.
The bank's failure (i) to work-out effectively its legacy
problem loans, and (ii) to boost operating profitability through
active resumption of new lending, while at the same time ensuring
good loan quality, may result in a continuing decline of MDM Bank's
capital adequacy levels and/or further material reduction in MDM Bank's
market share. If these negative trends continue, the rating
agency may downgrade MDM Bank's ratings.
For the outlook on MDM Bank's ratings to be revised back to stable,
the bank would need to return to sustainable profitability, demonstrate
visible improvements in its asset quality and other financial metrics,
while simultaneously regaining its recently weakened market franchise
and achieving further diversification of its loan book and customer funding
The methodologies used in this rating were Bank Financial Strength Ratings:
Global Methodology, published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2012. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
Domiciled in Novosibirsk, Russia, MDM Bank reported --
at year-end 2011 -- total consolidated assets of US$10.7
billion and total equity of US$1.6 billion under audited
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
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Moody's Investors Service may have provided Ancillary or Other Permissible
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page on our website www.moodys.com for further information.
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Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on MDM Bank's debt and deposit ratings to negative
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
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No Related Data.
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