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Rating Action:

Moody's takes rating actions on subsidiaries of two Russian Financial Institutions

03 Apr 2014

Actions follow review of parents' supported ratings

London, 03 April 2014 -- Moody's Investors Service has today taken rating actions on the supported senior unsecured debt and deposit ratings of six subsidiaries of two Russian Financial Institutions: Bank VTB, JSC (Baa2 on review for downgrade, standalone bank financial strength rating (BFSR) D-/baseline credit assessment (BCA) ba3) and Vnesheconombank (Baa1 on review for downgrade). These rating actions follow Moody's placement on review for downgrade of the debt, deposit and issuer ratings of the respective Russian parents on 1 April 2014. For additional information, please refer to the related announcement: https://www.moodys.com/research/Moodys-takes-rating-actions-on-six-Russian-Financial-Institutions--PR_295924

Specifically, Moody's has placed on review for downgrade the supported senior unsecured and deposit ratings of the five international and domestic subsidiaries of VTB group and one domestic subsidiary of Vnesheconombank. The subsidiary banks' affected ratings benefit from the uplift that Moody's derives from its assessment of parental support assumptions.

At the same time, the senior and subordinated debt instruments issued by two special-purpose vehicles belonging to VTB group were also placed on review for downgrade.

For a full list of affected ratings, please refer to the end of this press release.

RATINGS RATIONALE

SUPPORTED SENIOR UNSECURED DEBT AND DEPOSIT RATINGS

The review of the parental debt, deposit and issuer ratings has prompted the review of the subsidiaries' supported ratings, which incorporate Moody's parental support assumptions. Moody's will conclude the review of the subsidiary banks' ratings following (1) the conclusion of the review of the parents' ratings; and (2) Moody's assessment of the capacity and willingness of the parent banks to provide assistance to their domestic and international subsidiaries in the context of on-going volatility, in case of need. The supported ratings of the affected six subsidiaries currently benefit from two to five notches of uplift from their standalone BCAs.

VTB Group's subsidiaries

The supported ratings of VTB group's domestic and international subsidiaries incorporate Moody's view of the very high likelihood of support from the parent (Baa2 on review for downgrade), which in turn benefits from the systemic support uplift. Moody's believes that such systemic support from the Russian government (directly or indirectly through VTB) will benefit the group's subsidiaries given (1) the government's majority ownership of VTB group; and (2) that there is a strong track record of such support extended to the group and its subsidiaries by the Russian government and the Central Bank of Russia.

Therefore, the current uplift in the ratings of these subsidiaries could be affected by the rating action on the supported ratings of the parent bank.

SME Bank - subsidiary of Vnesheconombank

The deposit and debt ratings of SME bank incorporate Moody's view of the very high likelihood of support from its direct parent, Vnesheconombank, which in turn benefits from systemic support uplift. Moody's believes that such systemic support from the Russian government (directly or indirectly through Vnesheconombank) will benefit SME Bank given that (1) SME Bank is a fully-owned subsidiary of Vnesheconombank, and is the major Russian government vehicle to support the country's small and medium-sized enterprises; and (2) there is a strong track record of such support extended to SME Bank by the Russian government and Vnesheconombank.

Therefore, the current uplift on the ratings of SME Bank could be affected by the rating action on the supported ratings of the parent bank.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's considers that upward pressure on long-term ratings is unlikely in the near term, because the key drivers of today's actions relate to the review for downgrade of the parents' ratings. The review of the subsidiary banks' ratings will conclude shortly after the conclusion of the review on the parents' long-term ratings.

List of affected ratings

The following ratings have been placed on review for downgrade

- VTB Bank (Austria) AG - LC/FC deposit ratings at Baa3 and LC/FC Short-term deposit ratings P-3

- VTB Capital plc - LC/FC deposit ratings at Baa3 and LC/FC Short-term deposit ratings P-3

- VTB24LC/FC -deposit ratings at Baa2, LC/FC Short-term deposit ratings P-2, LC Senior unsecured and Senior secured ratings at Baa2

- VTB Bank (Deutschland) AG - LC/FC deposit ratings at Ba1

- Bank of Moscow - LC/FC Senior unsecured debt and deposit ratings at Ba1, Senior unsecured MTN - (P)Ba1, FC subordinate -- Ba3

- Kuznetski Capital S.A. -- FC Backed subordinated debt rating of Ba3

- VTB Capital S.A. -- FC Senior unsecured and Senior secured rating at Baa2

- SME Bank - LC Senior unsecured debt and deposit ratings at Baa2, FC deposit rating of Baa2, FC Short-term deposit rating P-2

The principal methodology used in these ratings was Global Banks published in May 2013. 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.

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 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 takes rating actions on subsidiaries of two Russian Financial Institutions
No Related Data.
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