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Rating Action:

Moody's lowers ratings of 9 Russian financial institutions; stable outlook on debt and deposit ratings for 8 financial institutions

24 Feb 2009

Moscow, February 24, 2009 -- Moody's Investors Service downgraded the local currency deposit ratings of eight Russian banks and the issuer rating of one government-owned mortgage lender, the Agency for Housing Mortgage Lending (AHML). All ratings remain investment grade. The foreign currency deposit ratings of seven banks were affirmed while the foreign currency deposit rating of Gazprombank and issuer ratings of AHML were downgraded. According to the rating agency, with the exception of the Bank of Moscow, the outlooks on the other banks' local and foreign currency debt and deposit ratings are stable; for the Bank of Moscow's ratings, the outlook was changed to negative from stable.

Moody's affirmed the bank financial strength ratings (BFSRs) of all 8 banks but changed the outlooks on the BFSRs to negative from stable for all the banks except for Russian Agricultural Bank (RAB), where it was changed to stable from positive, and for Vnesheconombank (VEB), where the outlook remained unchanged at stable. The ratings of five foreign subsidiaries of these Russian banks were also affected by Moody's rating actions. All rating actions are detailed below.

Moody's notes that today's rating actions reflect the increasingly negative impact of the global economic crisis on the Russian economy and on the intrinsic strength of its financial institutions. In recent months, most of the banks included in today's rating action have come to rely on capital and liquidity support provided directly or indirectly by the Russian government, as alternative sources of funding or capital have become more difficult to access. Given the systemic nature of the crisis and the large, but not unlimited, resources of the Russian government, Moody's has taken the view that the banks' local currency ratings need to be more closely aligned with the government's local currency debt rating, since it now represents the primary driver of their credit strength.

All of these institutions continue to be rated substantially higher than what would be implied by their intrinsic financial strength or BFSR, ranging from an E+ (mapping to a Baseline Credit Assessment of B1) to a D+ (mapping to a Baseline Credit Assessment of Ba1). Moody's believes that this approach continues to be justified by the support that the government would likely supply, and has already supplied, to these banks during the current crisis. The banks are considered of systemic importance to Russia given, for instance, their large depositor base (Sberbank), their function as a vehicle for channelling financial support and other public policy initiatives (VEB) or sector support (RAB).

Despite the large number of local currency rating downgrades, Moody's affirmed the majority of these financial institutions' foreign currency deposit ratings given that the latter were already constrained by Russia's foreign currency deposit ceiling,

The change in outlook on most of the banks' BFSRs to negative from stable -- and to stable from positive for RAB -- is driven by the rapidly deteriorating operating environment in Russia, which directly impacts the core financial strength of most banks. The resulting decline in asset quality is further aggravated by the depreciation of the Russian rouble, which is also reducing borrowers' ability to meet their debt service obligations and raises the cost of foreign currency lending by the banks. In addition, Moody's notes that the relatively low capital and provisioning levels among the banks limit their ability to absorb future losses from the anticipated poor asset performance. Furthermore, refinancing risk has increased, especially for foreign currency debt, as international markets continue to provide limited opportunities for raising debt.

The rating actions taken by Moody's are as follows:

Sberbank

- BFSR: Affirmed at D+ (mapping to Baseline Credit Assessment of Ba1), outlook change to negative from stable;

- Local currency deposit ratings: downgraded to A3/P-2 from A1/P-1;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- Senior unsecured foreign currency debt rating: downgraded to A3 from A2;

- Subordinated foreign currency debt ratings: downgraded to Baa1 from A2;

- The local currency deposit rating benefits from a very high systemic support probability that results in a four-notch uplift from the Baseline Credit Assessment of Ba1;

- The outlook on all of the bank's deposit and debt ratings is stable.

Bank VTB JSC

- BFSR: Affirmed at D- (mapping to Baseline Credit Assessment of Ba3), outlook changed to negative from stable;

- Local currency deposit ratings: downgraded to Baa1/P-2 from A1/P-1;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- Senior unsecured local currency debt rating: downgraded to Baa1 from A1;

- Senior unsecured foreign currency debt rating: downgraded to Baa1 from A2;

- Subordinated foreign currency debt ratings: downgraded to Baa2 from A2;

- The local currency deposit rating benefits from a very high systemic support probability that results in a five-notch uplift from the Baseline Credit Assessment of Ba3;

- The outlook on all of the bank's deposit and debt ratings is stable.

Bank VTB24

- BFSR: Affirmed at D- (mapping to Baseline Credit Assessment of Ba3), outlook changed to negative from stable;

- Local currency deposit ratings: downgraded to Baa1/P-2 from A1/P-1;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- Senior unsecured foreign currency debt rating: downgraded to Baa1 from A2;

- Subordinated foreign currency debt ratings: downgraded to Baa2 from A2;

- The local currency deposit rating benefits from a very high systemic support probability that results in a five-notch uplift from the Baseline Credit Assessment of Ba3;

- The outlook on all of the bank's deposit and debt ratings is stable.

Bank VTB North-West

- BFSR: Affirmed at D- (mapping to Baseline Credit Assessment of Ba3), outlook changed to negative from stable;

- Local currency deposit ratings: downgraded to Baa1/P-2 from A2/P-1;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- Subordinated foreign and local debt ratings: downgraded to Baa2 from A3;

- The local currency deposit rating benefits from a very high systemic support probability that results in a five-notch uplift from the Baseline Credit Assessment of Ba3;

- The outlook on all of the bank's deposit and debt ratings is stable.

Vnesheconombank (VEB)

- BFSR: Affirmed at E+ (mapping to Baseline Credit Assessment of B1) with stable outlook;

- Long-term local currency deposit ratings: downgraded to Baa1 from A3;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- The local currency deposit rating benefits from a very high systemic support probability that results in a six-notch uplift from the Baseline Credit Assessment of B1;

- The outlook on all of the bank's deposit ratings is stable.

Russian Agricultural Bank (RAB)

- BFSR: Affirmed at E+ (mapping to Baseline Credit Assessment of B1), outlook changed to stable from positive;

- Local currency deposit ratings: downgraded to Baa1/P-2 from A3/P-1;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2;

- Senior unsecured local and foreign currency debt rating: downgraded to Baa1 from A3;

- Subordinated foreign and local debt ratings: downgraded to Baa2 from Baa1;

- The local currency deposit rating benefits from a very high systemic support probability that results in a six-notch uplift from the Baseline Credit Assessment of B1;

- The outlook on all of the bank's deposit and debt ratings is stable.

Bank of Moscow

- BFSR: Affirmed at D (mapping to Baseline Credit Assessment of Ba2);

- Long-term local currency deposit ratings: downgraded to Baa1 from A3;

- Foreign currency deposit ratings: Affirmed at Baa1/P-2,

- Senior unsecured local and foreign currency debt rating: downgraded to Baa1 from A3;

- Subordinated foreign and local debt ratings: downgraded to Baa2 from Baa1;

- The local currency deposit rating benefits from a very high probability of support from the City of Moscow and a very high systemic support probability that results in a four-notch uplift from the Baseline Credit Assessment of Ba2;

- The outlook on all of the bank's BFSR and deposit and debt ratings changed to negative from stable.

Gazprombank

- BFSR: Affirmed at D- (mapping to Baseline Credit Assessment of Ba3); outlook changed to negative from stable;

- Long-term local currency deposit ratings: downgraded to Baa2 from A3;

- Foreign currency deposit ratings: downgraded to Baa2/P-2 from Baa1/P-2;

- Senior unsecured local and foreign currency debt rating: downgraded to Baa2 from A3;

- The local currency deposit rating benefits from a very high probability of support from Gazprom and a very high systemic support probability that result in a four-notch uplift from the Baseline Credit Assessment of Ba3;

- The outlook on all of the bank's deposit and debt ratings is stable.

Agency for Housing Mortgage Lending (AHML)

- Foreign and local currency issuer rating: downgraded to Baa1/P-2 from A3/P-1, outlook is stable;

- The local currency issuer rating benefits from a very high systemic support probability that results in a multi-notch uplift from the Baseline Credit Assessment of 11-13. This rating is placed at the same level as the local currency government bond rating for Russia.

Subsidiaries of the above institutions affected by Moody's rating action are as follows.

VTB Bank (Austria) AG

- BFSR: D (mapping to Baseline Credit Assessment of Ba2), placed on review for downgrade;

- Deposit ratings: downgraded to Baa3/P-3 from Baa2/P-2, placed on review for downgrade.

VTB Bank (France) SA

- BFSR: D (mapping to Baseline Credit Assessment of Ba2), placed on review for downgrade;

- Deposit ratings: downgraded to Baa3/P-3 from Baa2/P-2, placed on review for downgrade.

VTB Capital plc

- BFSR: D (mapping to Baseline Credit Assessment of Ba2), placed on review for downgrade;

- Deposit ratings: downgraded to Baa3/P-3 from Baa2/P-2, placed on review for downgrade.

Russian Bank for Development -- Subsidiary of Vnesheconombank (VEB)

- All ratings confirmed with stable outlook.

Bank of Moscow Minsk -- Subsidiary of Bank of Moscow (BOM)

- The local currency deposit ratings: Affirmed at Ba2/NP, outlook changed to negative from stable

- Foreign currency deposit ratings: Affirmed at B2/NP with stable outlook.

Moody's previous rating action on Sberbank was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating and the A2 long-term senior unsecured foreign currency debt rating was changed to stable from positive.

Moody's previous rating action on Bank VTB, JSC was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating and the A2 long-term senior unsecured foreign currency debt rating was changed to stable from positive.

Moody's previous rating action on VTB24 was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating and the A2 long-term senior unsecured foreign currency debt rating was changed to stable from positive.

Moody's previous rating action on Bank VTB North-West was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating was changed to stable from positive.

Moody's previous rating action on VTB Bank (Austria) AG was implemented on 4 May 2007, when the BFSR was upgraded to D from D-.

Moody's previous rating action on VTB Capital plc was implemented on 4 May 2007, when the BFSR was downgraded to D from D+.

Moody's previous rating action on VTB Bank (France) SA was implemented on 11 May 2007, when the bank's D/Baa2 ratings were affirmed.

Moody's previous rating action on Vnesheconombank was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating was changed to stable from positive.

Moody's previous rating action on Russian Agricultural Bank was implemented on 12 December 2008, when the outlook on the Baa1 foreign currency deposit rating was changed to stable from positive.

Moody's previous rating action on JSCB Bank of Moscow was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating was changed to stable from positive.

Moody's previous rating action on Gazprombank was implemented on 12 December 2008, when the outlook on Baa1 foreign currency deposit rating was changed to stable from positive.

Moody's previous rating action on Agency for Housing Mortgage Lending OJSC (AHML) was implemented on 27 March 2008 when Moody's raised AHML's long-term and short-term foreign currency issuer ratings to A3/Prime-1 from Baa2/Prime-2 aligning them with the issuer's A3/Prime-1 long-term and short-term local currency ratings.

The principal methodologies used in rating the banks affected by this press release are "Bank Financial Strength Ratings: Global Methodology" and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. The principal methodology used in rating the government-owned mortgage lender -- Agency for Housing Mortgage Lending (AHML) -- is "The Application of Joint-Default Analysis to Government Related Issuers". Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy & Methodologies directory.

Moscow
Yaroslav Sovgyra
VP - Senior Credit Officer
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's lowers ratings of 9 Russian financial institutions; stable outlook on debt and deposit ratings for 8 financial institutions
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