Downgrades foreign currency deposit ratings of four Russian financial institutions due to lower country ceiling
London, 23 December 2014 -- Moody's Investors Service has today placed on review for downgrade the
long-term deposit, debt and issuer ratings and bank financial
strength ratings (BFSRs) of 16 Russian financial institutions in response
to the ongoing severe deterioration in Russia's operating environment
and financial market conditions. With a much more pronounced weakening
in Russia's economic outlook in the next two years than previously
anticipated, financial institutions now face more significant pressures
on their funding costs, asset quality and profitability in the medium
term. The review will focus on each institution's resilience
to these much stronger headwinds.
Moody's has also downgraded the long-term and short-term
foreign-currency deposit ratings of four Russian financial institutions,
following the lowering of the country's foreign currency deposit
ceiling to Ba1 from Baa2, on 22 December 2014. For additional
information on the changes to country ceilings, please refer to
the related announcement: https://www.moodys.com/research/--PR_315606
Please click the following link to access the full List of Affected Credit
Ratings, which is an integral part of this Press Release and identifies
each affected issuer: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_178368
RATINGS RATIONALE
-- RATIONALE FOR RATING REVIEW
The review for downgrade reflects the severe and rapid deterioration in
the operating environment in Russia and the heightened risk of a more
prolonged and more acute economic downturn than originally anticipated.
As a result, Moody's now expects Russian GDP to contract by
5.5% in 2015 and 3% in 2016.
Substantial and persistent volatility in macroeconomic fundamentals has
strengthened the headwinds against the Russian banking system and may
lead to a lasting deterioration in the credit profiles of many Russian
financial institutions, which would place downward pressure on their
ratings.
Specifically, the Russian rouble has lost more than 40% of
its value against the dollar since the beginning of 2014. To counter
this trend, the Central Bank of Russia (CBR) has been increasing
its key interest rates, although its efforts have had limited impact
in stabilising the currency. Since the beginning of 2014,
the CBR has hiked interest rates by 11.5 percentage points in total,
contributing to a notable increase in domestic wholesale funding costs
for Russian banks. The severity of the negative trend in domestic
wholesale markets for the leading Russian financial institutions has been
accentuated by severely constrained access to European and US capital
markets. Such unfavourable funding conditions could potentially
heighten refinancing and liquidity risks in the banking system.
In Moody's view, the measures undertaken by the CBR to supply additional
foreign currency liquidity to the system via medium-term repo operations
only partly mitigates this pressure.
In addition, the rating agency expects that a substantially higher
interest rate environment will constrain lending opportunities,
worsen asset quality and affect financial institutions' profitability,
which has been on the decline since the beginning of 2014. Moody's
also expects that foreign currency and interest rate volatility will be
detrimental to borrower creditworthiness and, therefore, negatively
affect the asset quality of Russian banks. Such volatility would
have the greatest impact on foreign currency loans without underlying
foreign-currency revenues, which by Moody's estimates
account for 7%-9% of the total system-wide
loan book. High single-borrower and related-party
exposures, which represent a chronic problem for the Russian banking
system, also exacerbate asset quality risks.
FACTORS TO BE CONSIDERED IN THE RATING REVIEW
Considering the adverse changes to the operating environment for the 16
affected Russian financial institutions, the rating review for downgrade
will focus on (1) the magnitude of any further volatility in the operating
environment and its impact on the banking system; and (2) the ability
of affected financial institutions to absorb additional negative shocks,
and stabilise their deposit base and credit profiles under the prevailing
negative operating conditions.
Moody's will also consider the effectiveness of regulatory measures introduced
by the Russian authorities aimed at stabilising the banking system.
Such measures include the bill approved by the Russian Duma (on 19 December
2014), under which RUB1 trillion (approximately $17 billion)
will be injected into the banking sector with the help of the Deposit
Insurance Agency, the retail deposit watchdog.
Finally, Moody's will also consider whether any adjustments should
be made to its assumptions regarding the Russian government's willingness
to provide extraordinary support to financial institutions, in the
event of need. This follows Moody's decision to lower Russia's
foreign currency bond and deposit ceilings to reflect the rising,
though still very low, risk that domestic Russian entities will
be unable to access foreign currency to service their foreign currency
bond- and deposit-related obligations, given recent
and prospective pressure on Russia's foreign currency reserves,
which nevertheless remain substantial. However, if Russia's
foreign currency reserves continue to diminish rapidly over the coming
months, the government may be forced to prioritise which non-sovereign
issuers to support in an adverse scenario.
-- DOWNGRADE OF THE FOREIGN-CURRENCY DEPOSIT RATINGS
The downgrade of the long-term and short-term foreign currency
deposit ratings of four Russian financial institutions, takes into
account the lowering of Russia's foreign currency deposit ceiling
to Ba1 from Baa2 on 22 December 2014. Moody's foreign currency
ceilings determine the highest rating possible in a given country for
debt instruments denominated in foreign currency issued by domestic borrowers
other than the national government.
Moody's maintains its review for downgrade on the affected foreign
currency deposit ratings given their sensitivity to further downward pressure
on the standalone ratings of these entities.
WHAT COULD MOVE THE RATINGS UP/DOWN
The ratings of the financial institutions affected by today's rating
action could be lowered in case the risk absorption capacity and financial
fundamentals of the affected entities are eroded, in Moody's view,
by the recent events and increasing challenges stemming from the operating
environment. Conversely, improvements in Russia's economic
growth prospects could stabilise ratings at current levels.
Given the ongoing review for further downgrade, Moody's considers
that upward pressure on the long-term debt and deposit ratings
of Russian financial institutions affected by today's action is
unlikely in the near term.
The principal methodology used in rating Agency for Housing Mortgage Lending
OJSC and Vnesheconombank was Government-Related Issuers published
in October 2014.
The principal methodology used in rating Sberbank, Bank VTB,
JSC, VTB Capital S.A., Gazprombank, Russian
Agricultural Bank, Zenit Bank, Vozrozhdenie Bank, JSB
Rosbank, Promsvyazbank, ING Bank Eurasia, Center-Invest
Bank, Bank Saint-Petersburg OJSC, Bank Otkritie Financial
Corporation PJSC, Banca Intesa (Russia), Alfa-Bank,
Alfa MTN Issuance Limited, Alfa MTN Markets Limited, Alfa
MTN Projects Limited and Alfa MTN Invest Ltd was Global Banks published
in July 2014. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
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.
Irakli Pipia
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Yves J Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews for downgrade ratings of 16 Russian financial institutions