London, March 10, 2022 -- Moody's Investors Service (“Moody's”) today downgraded ratings and assessments of 39 Russian financial institutions, following the downgrade of the Government of Russia's ratings to Ca from B3, with a negative outlook (please see "Moody's downgrades Russia's ratings to Ca from B3; the outlook is negative", https://www.moodys.com/research/--PR_463675). Local currency long-term deposit ratings, Counterparty Risk Ratings and senior unsecured local currency ratings of impacted banks have been downgraded to Caa3, whereas the foreign currency long-term deposit, senior unsecured and subordinated debt ratings – where applicable - of banks and Corporate Family Ratings or long-term issuer ratings of non-bank issuers were downgraded to Ca.
The outlooks on the affected financial institutions' ratings are negative. Today's rating action was triggered by Moody's expectation that capital controls by the Central Bank of Russia (CBR) will restrict cross border payments, including for debt service on financial institution bonds. The impact of the severe and coordinated sanctions announced in recent days by Western countries on Russia, as well as the response of the Russian authorities, are also reflected in the change of Russia's Macro Profile to 'Very Weak' from 'Weak+'.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL463733 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The rating action is driven by three main factors: 1) restriction on cross border payments due to capital controls introduced by the CBR; 2) the likelihood of a sustained weakening of financial institutions' operating environment due to sanctions and macro level stress; and 3) the impact of the downgrade of the government rating and lowered ceilings, which constrain the financial institutions' ratings, given the inherent tight credit linkages between the government and banks in the country. These factors result in Baseline Credit Assessments (BCA) of ca for all banks. Meanwhile government support does not result in any uplift to ratings given the Ca rating on the Russian government. Furthermore, support from foreign owners in some cases is highly unlikely in the current context.
First, Moody's has severe doubts around the Government of Russia's willingness and ability to service its debt, for both state-owned and privately owned financial institutions, given a reported statement from the National Settlement Depository (NSD) that coupon payments on OFZ government bonds due on Wednesday 2 March have only been paid to local holders of the papers, citing the CBR order prohibiting payments to non-residents.
Second, the imposition of severe and coordinated sanctions also raises the probability of sustained disruption to Russia's economy and financial sector, and potential imposition of additional sanctions, or extending the list of sanctioned banks, would make such disruption even more acute. In particular, Moody's expects that both asset quality and liquidity risks for Russian banks will increase sharply as borrowers' creditworthiness suffers from the weakening economic outlook and as depositors' confidence deteriorates amid the increased uncertainty.
The scope and severity of the sanctions announced to date exceed Moody's initial expectations and will have material credit implications. The European Union's restrictions on seven Russian banks from using the SWIFT payment messaging system will complicate funds transfer and cross border payments. This follows earlier moves on 24 February, when the US imposed correspondent and payable-through account sanctions on Sberbank and blocking sanctions on four other systemically important banks. Furthermore, sanctions against the CBR will hamper the use of foreign reserves to support the ruble and the financial system in case of need.
Third, the downgrade of the sovereign rating and lowered ceilings have also constrained the financial institutions' ratings at lower levels. In accordance with Moody's Country Ceilings Methodology available at https://www.moodys.com/research/--PBC_1225594, country ceilings indicate the highest rating level that would generally be assigned to the financially strongest issuers domiciled in a country, and are linked to the sovereign ratings. Concurrent with downgrading Russia's sovereign ratings, Moody's lowered Russia's local and foreign-currency country ceilings to Caa2 from B2 and B3 respectively. Moody's has rated the affected financial institutions' local currency deposits and debt higher than foreign-currency obligations, which reflects the rating agency's assessment of the relative ranking of these obligations.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook on the financial institutions' ratings reflects the severe risks to macro-economic stability posed by the imposition of severe and coordinated sanctions and the financial ramifications from central bank capital controls and delays to sovereign debt repayments. The sanctions and retaliatory measures have already caused a significant confidence shock, which will likely result in a prolonged disruption to the economy and financial sector. Moody's expects the economy will contract by 7% in real terms in 2022 and decline further in 2023. A sustained depreciation of the ruble will have severe economic consequence in the form of higher inflation and lower living standards. Significant deposit withdrawals that reduce liquidity in the banking system would add to the risks to financial stability and could require the government to step in to support the banking sector.
Furthermore, Moody's expects the sustained economic and financial disruption will compound doubts around the government's willingness to service its debt. As a result, the unpredictability of government actions could result in larger losses for depositors and senior unsecured investors than is consistent with Caa3 local currency and Ca foreign currency ratings.
Although inflows of foreign currency from the export of Russian oil and gas should cushion the impact of these severe sanctions, this does not preclude, in Moody's view, the high likelihood of a sustained economic disruption and increased susceptibility to shocks. In addition, a further ratcheting up of the sanctions imposed on Russia could very well apply to this vital source of foreign currency and government revenue.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of the financial institutions' ratings is currently unlikely, given the negative outlooks. However, the outlooks could be changed to stable if Moody's concludes that recovery for investors was likely to remain consistent with the currently assigned ratings. While unlikely, Moody's would consider upgrading the financial institutions' ratings if the likelihood of large losses for private creditors was to diminish durably.
The financial institutions' ratings could be downgraded further if, in the event of a default, losses for investors were likely to be greater than assumed in their current ratings. This could result from an even more destabilizing impact from sanctions and capital controls than Moody's currently assumes.
PRINCIPAL METHODOLOGY
The principal methodology used in rating Alfa-Bank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Sberbank, Tinkoff Bank, Absolut Bank (PAO), Bank ZENIT PJSC, Commercial Bank AK BARS, PJSC, JSC DOM.RF, National Reserve Bank, Russian Regional Development Bank, Bank Solidarnost, AO RAIFFEISENBANK, Bank Saint-Petersburg PJSC, Bank Uralsib, Center-Invest Bank, Credit Europe Bank (Russia) Ltd., Metallinvestbank JSCB, NBD Bank, PJSC ROSBANK, CB Kuban Credit Ltd, Commercial Bank Agropromcredit (LLC), Joint Stock Commercial Bank Avangard, Maritime Bank, Metkombank, NK Bank, Petersburg Social Commercial Bank and Rosdorbank was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. The principal methodology used in rating Renaissance Financial Holding Limited, Aton Capital Group, Aton Financial Holding, Atonline Limited, Solar LLC, Starberry Limited, IC RUSS-INVEST and Newbest Limited was Securities Industry Market Makers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187332. The principal methodology used in rating Omega Funds Investment Ltd was Securities Industry Service Providers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187116. The principal methodology used in rating PJSC ''LC ''Europlan'' was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. The principal methodologies used in rating State Transport Leasing Company (JSC GTLK), GTLK Europe DAC and GTLK Europe Capital DAC were Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL463733 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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.
Yaroslav Sovgyra, CFA
Associate Managing Director
Financial Institutions Group
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
Nicholas Hill
MD - Financial Institutions
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
