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Announcement:

Moody's changes outlooks on Bank VTB, VTB24 and Bank VTB North-West financial strength ratings to stable from negative (Russia)

20 Aug 2010

Debt and deposits ratings affirmed

Moscow, August 20, 2010 -- Moody's Investors Service has today affirmed the D- stand-alone bank financial strength ratings (BFSR) of Bank VTB (VTB) and its two subsidiaries: VTB24 and Bank VTB North-West (VTB NW), and changed the outlook on those ratings to stable from negative. At the same time, Moody's has affirmed the banks' Baa1 supported long-term local and foreign currency deposit, and Baa1/Baa2 senior/subordinated debt ratings, with stable outlooks. The banks' P-2 short-term local and foreign currency deposit ratings were also affirmed. Concurrently, Moody's Interfax Rating Agency affirmed VTB24 and VTB NW's Aaa.ru national scale rating (NSR); national scale ratings carry no specific outlook.

Moody's assessment is primarily based on VTB, VTB24 and VTB NW's audited financial statements for 2009 prepared under IFRS, signed on 25 March 2010, 25 March 2010 and 22 March 2010, respectively. At the same time, we caution that our assessment, in part, incorporates information from non-audited interim consolidated statements under IFRS, signed by VTB on 31 May 2010 (Q1 2010 statements), and by VTB NW on 9 August 2010 (H1 2010).

"According to Moody's, the rating actions on VTB and its Russian subsidiaries VTB24 and Bank VTB North-West reflect the stable trends in the banks' financial fundamentals," says Eugene Tarzimanov, a Moody's Vice-President -- Senior Analyst and lead analyst for the banks. "The operating environment in Russia is showing signs of improvement after a turbulent 2009, with the economy growing 2.9% in Q1 2010. The asset quality of the banks, which has been a particular concern since late 2008 when the crisis hit Russia, is stabilising; in addition, provisions and capital buffers appear adequate to offset expected credit losses under Moody's base case stress-tests."

VTB

Although problem loans are likely to grow somewhat at VTB before peaking in H2 2010, Moody's believes that VTB has already identified most large problem exposures. Loans overdue by more than 90 days increased to 10.2% of gross loans at Q1 2010 (unaudited data), from 9.8% at YE2009 (2008: 1.9%). This level appears to be in line with Russian peers. NPLs were 96% covered by provisions, with a provisions/gross loans ratio of 9.8% at Q1 2010. In addition, the bank's total CAR of 22.2% at Q1 2010 (unaudited) indicates that VTB has an adequate buffer against further potential credit losses.

Customer deposits -- VTB's core funding base accounting for 54% of liabilities -- have grown by 43% in 2009, a high level considering the stress in the banking system seen last year (all data under IFRS). VTB's liquidity appears to be adequate, with cash, cash equivalents and relatively liquid securities accounting for around 22% of total assets at Q1 2010 (unaudited data). Although Moody's sees some near-term refinancing risks for VTB due to a large share of wholesale and bilateral borrowings in liabilities, the group has been successful so far in attracting new funds from the market. In 2010 to date, VTB has raised around USD2.6 billion through six wholesale deals. In addition, in case of need VTB has access to uncollateralised facilities from the Russian Central Bank of around USD31 billion.

Negative BFSR drivers for VTB include the possibility of government interference in the bank's business, weak asset quality, high single-party and industry concentrations in loans, and significant reliance on market funding.

VTB24

VTB 24, the retail/SME arm of the group, reported adequate financial results for 2009, despite the rapid increase in provisions. Loans overdue by more than 90 days accounted for 8.3% of gross loans at YE2009, and were almost fully provisioned. In Moody's view, VTB24's Tier 1 capital ratio, at 18.8% at YE2009, provides a good buffer against credit losses.

VTB24's liquidity appears to be adequate, supported by an inflow of retail and SME deposits that grew by 44% in 2009, and by a further 13% in H1 2010. Given its limited market borrowings, Moody's estimates that VTB24's refinancing risk is relatively low.

Negative BFSR drivers for VTB24 include pressured asset quality, large maturity mismatches between assets and liabilities, corporate governance concerns reflecting the parent's shortcomings in this area, and moderate core profitability.

VTB NW

VTB NW, a predominantly corporate bank active in St. Petersburg and the Russian North West district, reported strong financial results for H1 2010 (unaudited). The bank appeared to have posted a net profit for H1 2010 of RUB3.7 billion (same period of 2009: RUB2.3 billion), indicating a ROA of 3.3% (annualised) for that period. In terms of asset quality, VTB NW reported that its impaired loans amounted to 10.1% of gross loans at 30 June 2010 (unaudited). The level of loan loss provisions (amounting to 9.6% of gross loans at that date) and the bank's total CAR (16.9%) appeared to provide an adequate buffer against potential credit losses anticipated by Moody's.

In June 2010, VTB's shareholders approved the merger of VTB NW into VTB. This process is targeted for completion in Q1 2011. As a result, VTB NW will become a regional branch of VTB, and will cease to hold a separate banking license. This merger has been in the works for a number of years already, and Moody's does not expect material operational risks to materialise. In addition, VTB NW's management does not foresee that wholesale debt will be accelerated because of the merger.

VTB NW's BFSR remains pressured by the bank's significant concentrations on both sides of the balance sheet, relatively weak quality of the loan book, and developing corporate governance practices.

DEBT AND DEPOSIT RATINGS

VTB's debt/deposit ratings continue to enjoy unconditional support from the Russian government. In Moody's opinion, this is due to VTB's systemic importance in Russia. In turn, the debt/deposit ratings of VTB24 and VTB NW are fully supported by VTB. In Moody's view, those subsidiaries are fully integrated into the group, and are strategically important for VTB. VTB24 is the retail/SME arm of VTB, while VTB NW is active in a region of high importance for VTB.

Moody's previous rating actions on VTB, VTB24 and VTB NW were on 24 February 2009, when we changed the outlooks on the D- BFSRs of those banks to negative from stable, on expectations that the global economic crisis would have an increasingly negative impact on the Russian economy and those banks' intrinsic strength.

The principal methodologies used in rating VTB, VTB24 and VTB NW are "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 2007, which can be found at www.moodys.com in the Ratings Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Moscow, the Russian Federation, VTB reported -- as at 31 March 2010 -- total assets of RUB3.4 trillion, total equity of RUB520 billion and net IFRS profit of RUB15.3 billion. Moody's cautions that this data, although under IFRS, is not audited.

Headquartered in Moscow, the Russian Federation, VTB24 reported -- as at 31 December 2009 -- total assets of RUB712 billion, total equity of RUB81 billion and net IFRS profit of RUB4.9 billion. This data is audited under IFRS.

Headquartered in St. Petersburg, the Russian Federation, VTB NW reported -- as at 30 June 2010 -- total assets of RUB215 billion, total equity of RUB30 billion and net IFRS profit of RUB3.7 billion. Moody's cautions that this data, although under IFRS, is not audited.

NATIONAL SCALE RATINGS

Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Russia are designated by the ".ru" suffix. NSRs differ from global scale ratings, as assigned by Moody's Investors Service, in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.

ABOUT MOODY'S AND MOODY'S INTERFAX

Moody's Interfax Rating Agency (MIRA) specialises in credit risk analysis in Russia. MIRA is controlled by Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets. Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE: MCO).

Further information is available at www.moodys.com

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moscow
Eugene Tarzimanov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Moody's Eastern Europe LLC
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia

Moody's changes outlooks on Bank VTB, VTB24 and Bank VTB North-West financial strength ratings to stable from negative (Russia)
No Related Data.
© 2018 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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