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Rating Action:

Moody's downgrades ratings of Russian subsidiaries of foreign banks

25 Feb 2015

Concludes rating review

London, 25 February 2015 -- Moody's Investors Service has today taken rating actions on six Russian financial institutions that are subsidiaries of foreign banks -- AO Raiffeisenbank, JSB Rosbank, ING Bank Eurasia, DeltaCredit Bank, Rusfinance Bank and Banca Intesa (Russia). Please refer to the end of this press release for a detailed list of affected ratings.

Moody's expects a prolonged recessionary environment in Russia resulting in a very challenging operating environment for the banks, impacting negatively their credit profiles. The rating agency has thus lowered the standalone bank financial strength ratings (BFSRs) of all but one of the named banks, Rusfinance Bank, whose BFSR was maintained.

These actions also capture the weakening of Russia's credit profile, as reflected by Moody's downgrade of Russia's government debt rating to Ba1 from Baa3, negative outlook, on 20 February 2015, which prompted the lowering of the country's foreign-currency deposit ceiling to Ba2 from Ba1. For all but two of the banks -- Banca Intesa (Russia) and AO Raiffeisenbank -- Moody's has therefore downgraded their long-term foreign-currency deposit ratings, as they are constrained by the country's ceiling.

At the same time, Moody's downgraded the supported senior unsecured, subordinated debt and local currency deposit ratings of all but one of the named banks, Rusfinance Bank. These ratings incorporate Moody's assessment of the parental support uplift that is derived from particular parent banks' ratings.

This rating action concludes the review for downgrade placed on these ratings in December 2014.

For additional information on the sovereign rating action taken on 20 February, please refer to the related announcement: https://www.moodys.com/research/--PR_318857 .

RATINGS RATIONALE

AO RAIFFEISENBANK

The lowering of AO Raiffeisenbank's standalone BFSR from D+ to D and downgrade of the long-term ratings from Ba1 to Ba2 reflects recent severe and rapid deterioration in the operating environment that will substantially weaken AO Raiffeisenbank's historically strong asset quality and profitability. Moody's also notes the deleveraging plans of AO Raiffeisenbank's parent to decrease risk-weighted assets in Russia by 20% in the next three years, that might further negatively weigh on the Russian bank's revenue.

The expected deterioration in AO Raiffeisenbank's financial profile and operating environment is balanced by the bank's strong loss-absorption capacity, good liquidity buffer and asset quality that Moody's considers to be superior to most other Russian banks. As at year-end 2014, AO Raiffeisenbank reported total capital adequacy of 18.32% in accordance with Basel III, low reliance on wholesale funds and cash and cash equivalents accounting for more than 20% of total assets (or 35% of all customer accounts). Moody's also notes AO Raiffeisenbank's previously conservative strategy with a pace of loan growth much below the Russian-average and low risk appetite with historical credit costs one of the lowest in the sector.

JSB ROSBANK

JSB Rosbank's BFSR was lowered to D- (BCA of ba3) from D (ba2), with a negative outlook reflecting Moody's expectations of further pressures on the retail lender's asset quality and profitability driven by the weakening of the borrowers' creditworthiness in the context of a sharp economic contraction and a high interest rate environment.

As a result of the growing volume of problem loans in the unsecured consumer portfolio and the default of one large corporate client, JSB Rosbank's credit costs already climbed to 2.6% of loans (annualised) in H1 2014, up from 1.6% in 2013. As a consequence, the bank reported relatively weak profitability in H1 2014, with a return on average equity (RoAE) of 4.1%, down from 11.3% in 2013. Given the highly adverse operating environment, these negative trends are expected to extend into this year, possibly next. At the same time, Moody's notes that the bank's strong capitalisation should help it in absorbing the expected credit losses under Moody's central scenario. The bank reported a Tier 1 ratio of 15.7% at H1 2014 under Basel I.

The weakening trends in the bank's standalone credit profile also led to the downgrade of the bank's local currency deposit and debt ratings to Ba1 from Baa3. Those ratings continue to benefit from two notches of uplift from its lower BCA due to Moody's assumption of a very high probability of support from the parent bank, Societe Generale (A2 negative/Prime-1, C- stable/baa2), in case of need.

DELTACREDIT BANK

Moody's decision to lower DeltaCredit Bank's BFSR to D- (BCA of ba3) from D (ba2), with a negative outlook reflects the expectation that the mortgage lender's credit fundamentals will weaken, owing to higher credit costs from the weakening capacity of individual borrowers to service their loans, some of which are denominated in foreign-currency. The rating agency notes that the latter accounted for 24% of the bank's mortgage portfolio as at year-end 2014, while the rouble depreciated by approximately 40% against the bi-currency basket over 2014. At the same time, Moody's notes that DeltaCredit's capital buffer should help the institution weather the expected pressure on asset quality and associated rise in credit costs this year and next. As of H1 2014, the bank had a Basel I Tier 1 ratio of 26.4%.

As a result of the expected erosion of the bank's standalone credit profile, Moody's also downgraded the bank's local currency deposit and its debt ratings to Ba1 from Baa3. Those ratings continue to benefit from two notches of uplift from its lower BCA due to Moody's assumption of a very high probability of support from the parent bank, Societe Generale (A2 negative/Prime-1, C- stable /baa2), in case of need.

ING BANK EURASIA

Moody's lowered ING Bank Eurasia's BFSR to D- from D (which now maps to ba3 BCA) with the negative outlook, as a result of the highly adverse operating environment and its anticipated negative impact on the bank's profitability and capital position.

At the same time, Moody's notes (1) ING Bank Eurasia's very good asset quality relative to other Russian banks; (2) its still adequate capital cushion, with regulatory capital adequacy ratio of 17.1% as of end-2014, and (3) a favourable funding and liquidity profile supported by parental funding.

Moody's also downgraded ING Bank Eurasia's local-currency deposit rating to Baa3 from Baa2, following the lowering of Russia's local-currency deposit ceiling to Baa3 from Baa2. The bank's Baa3 local-currency deposit rating continues to incorporate three notches of uplift from its lower BCA due to Moody's assessment of a very high probability of parental support, in case of need, from ING Bank N.V. (A2 negative/Prime-1, C- stable/baa1).

BANCA INTESA (RUSSIA)

Moody's expects further pressures on the bank's asset quality and profitability stemming from the recession in Russia and increased interest rates since the end of 2014. The rating agency therefore lowered Banca Intesa (Russia)'s BFSR to E+ (BCA of b1) from D- (ba3).

The adverse impact is aggravated by the bank's excessive exposure to SME sector (57% of gross portfolio at year-end 2014), which tends to be the most vulnerable to any deterioration in the economic environment. In H1 2014, Banca Intesa (Russia) was virtually break-even: its net income dropped to RUB27 million (H1 2013: RUB229 million), which translated into a negligible return on average assets (ROAA) of 0.08% (2013: 0.25%, 2012: 1.44%). Given increasing credit and funding costs along with weak operating efficiency, Moody's expects the bank will be loss-making in 2015. At the same time, the bank's capital provides sufficient cushion to absorb potential credit losses stemming from increased pressure on the loan book's credit quality, with the reported Tier 1 and Total capital adequacy ratios standing at 22.7% and 22.9%, respectively, as of H1 2014.

Reflecting the anticipated weakening of the bank's standalone credit profile, Moody's also downgraded Banca Intesa's (Russia) long-term deposit ratings to Ba2 from Ba1. Those ratings continue to benefit from two notches of uplift as a result of Moody's assessment of a high probability of support, in case of need, from the bank's parent, Intesa Sanpaolo SpA (Baa2 stable; D+ stable /BCA baa3).

DOWNGRADE OF THE FOREIGN-CURRENCY DEPOSIT RATINGS

The downgrade of the long-term foreign-currency deposit ratings of JSB Rosbank, DeltaCredit bank, ING Bank Eurasia and Rusfinance bank, follows the lowering of Russia's foreign-currency deposit ceiling to Ba2 from Ba1 on 20 February 2015.

LIST OF AFFECTED RATINGS

The following rating actions were taken:

AO RAIFFEISENBANK

- BSFR was lowered to D from D+ (now equivalent to a BCA of ba2), outlook was revised to negative;

- Long--term LC and FC Deposit ratings were downgraded to Ba2 from Ba1, outlook was revised to negative;

- Long -- term LC Senior Unsecured rating was downgraded to Ba2 from Ba1, outlook was revised to negative.

JSB ROSBANK

- BSFR was lowered to D- from D (now equivalent to a BCA of ba3), outlook was revised to negative;

- Long--term LC Deposit rating was downgraded to Ba1 from Baa3, outlook was revised to negative;

- Short--term LC Deposit rating was downgraded to NP from P-3;

- Long--term FC Deposit rating was downgraded to Ba2 from Ba1, outlook was revised to negative;

- Long -- term LC Senior Unsecured and Senior Unsecured Bank Credit Facility ratings were downgraded to Ba1 from Baa3, outlook was revised to negative;

- Long -- term LC Senior Unsecured MTN program rating was downgraded to (P)Ba1 from (P)Baa3.

DELTACREDIT BANK

- BSFR was lowered to D- from D (now equivalent to a BCA of ba3), outlook was revised to negative;

- Long--term LC Deposit rating was downgraded to Ba1 from Baa3, outlook was revised to negative;

- Long--term FC Deposit rating was downgraded to Ba2 from Ba1, outlook was revised to negative;

- Long -- term LC Senior Unsecured rating was downgraded to Ba1 from Baa3, outlook was revised to negative;

- Long -- term LC Senior Unsecured rating was downgraded to (P)Ba1 from (P)Baa3;

- Long -- term LC Senior Secured rating was downgraded to Ba1 from Baa3, outlook was revised to negative;

- Long -- term LC BACKED Senior Secured rating was downgraded to Baa3 from Baa2, outlook was revised to negative.

ING BANK EURASIA

- BFSR was lowered to D- from D (now equivalent to a BCA of ba3), outlook was revised to negative;

- Long--term LC Deposit rating was downgraded to Baa3 from Baa2, outlook was revised to negative;

- Long--term FC Deposit rating was downgraded to Ba2 from Ba1, outlook was revised to negative;

- Short -- term LC Deposit rating was downgraded to P-3 from P-2.

BANCA INTESA (RUSSIA)

- BSFR was lowered to E+ from D- (now equivalent to a BCA of b1), outlook was revised to stable;

- Long--term LC and FC Deposit ratings were downgraded to Ba2 from Ba1, outlook was revised to negative.

RUSFINANCE BANK

- BFSR of E+ Maintained (equivalent to a BCA of b1) , stable outlook;

- Long--term FC Deposit rating was downgraded to Ba2 from Ba1, negative outlook;

- Long-term LC Deposit rating of Ba1 affirmed, negative outlook;

- Short-term LC and FC Deposit ratings of NP were affirmed;

- Long-term LC Senior Unsecured rating of Ba1 affirmed, negative outlook.

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy 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 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 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.

Petr Paklin
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
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's downgrades ratings of Russian subsidiaries of foreign banks
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