London, 31 October 2017 -- Moody's Investors Service (Moody's) has today upgraded to Ba1 from Ba2
Alfa-Bank's local-currency long-term deposit
rating and local- and foreign-currency senior unsecured
debt ratings. At the same time, Moody's affirmed the
bank's Ba2 foreign-currency deposit ratings that are constrained
by the foreign-currency deposit ceiling of Russia. The outlook
on these ratings remains stable.
Concurrently, Moody's affirmed Alfa-Bank's baseline
credit assessment (BCA)/adjusted BCA of ba2, subordinated debt ratings
of B1 (hyb)/B2 (hyb), the bank's CR Assessments of Ba1(cr)/Not Prime(cr),
and short-term deposit ratings of Not Prime.
The rating action is triggered by reassessed government support assumptions
that now provide a one-notch rating uplift for the bank's
deposit and senior unsecured debt ratings from the adjusted BCA of ba2.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The upgrade of Alfa Bank's long-term local-currency
deposit and local- and foreign-currency senior unsecured
debt ratings to Ba1 from Ba2 reflects Moody's view that the probability
of the bank's senior debt and deposits benefiting from support of the
Central Bank of Russia (CBR) should it be needed is now high. The
CBR has recently introduced and tested its newly-designed toolkit
to provide extraordinary support to large privately-owned banks
via its Banking Sector Consolidation Fund (BSCF). This results
in one notch of uplift to the bank's senior unsecured debt and deposit
ratings from its BCA of ba2. The affirmation of BCA/adjusted BCA
at ba2 reflects the bank's strong solvency and liquidity metrics as well
as expectations that the bank's business model will remain resilient and
the bank will continue to generate profits despite possible headwinds
associated with the bank's high single-name credit risk concentrations,
particularly foreign-currency denominated exposures provided to
borrowers from the commercial real estate and development segment.
As of 30 June 2017, Alfa-Bank reported problem loans at 9.2%
of gross loans, a decline from the peak level of 12.7%
reported at year-end 2015. As the negative pressure stemming
from the build-up of new problem loans largely eased while the
successful work-outs of legacy problems helped to reduce non-performing
assets, credit costs bottomed to 1.31% in 2016 and
further positively reversed to 0.45% in the first half of
2017. Lower funding costs also helped the bank to substantially
improve its profitability metrics. In 2016 Alfa bank reported 1.53%
return on average assets with a further increase to 2.2%
(annualised ratio) in H1 2017. We expect the bank to report strong
pre-provision earnings in the coming years, that would enable
it to successfully deal with possible loan impairments. Apart from
strong recurring earnings, the bank consistently reports strong
capital cushion, as reflected in its 15.8% Tangible
Common Equity % Risk Weighted Assets ratio as of 30 June 2017.
In addition to healthy solvency metrics, Alfa-Bank also reports
strong (compared to its local peers) liquidity profile owing to its granulated
deposit base, that was recently growing, and a large liquidity
cushion (includes cash and cash equivalents, liquid securities and
short-term deposits with banks) at 28% of total assets as
of 30 June 2017.
WHAT COULD MOVE THE RATINGS UP / DOWN
A sovereign rating upgrade could lead to an upgrade of Alfa-Bank's
long-term ratings, provided there is no deterioration in
the bank's financial profile. An upgrade in the bank's
BCA, resulting, for example, from a reduction in single-name
concentrations in the loan book combined with lower foreign-currency
lending, could also exert an upward rating pressure.
Conversely, the ratings could be downgraded in case of a sharp deterioration
in the operating environment that could hamper Alfa-Banks financial
metrics, or a reduction in key credit metrics notably solvency or
liquidity. We might also downgrade the bank's long-term
ratings that benefit form government support uplift, if the government
capacity or willingness to provide support weakens.
LIST OF AFFECTED RATINGS
Issuer: Alfa-Bank
Upgrades:
....LT Bank Deposit (Local Currency),
Upgraded to Ba1 from Ba2, Outlook Remains Stable
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba1 from Ba2, Outlook Remains Stable
....BACKED Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba1 from Ba2, Outlook Remains Stable
Affirmations:
....LT Bank Deposit (Foreign Currency),
Affirmed Ba2, Outlook Remains Stable
....ST Bank Deposits, Affirmed NP
....Subordinate, Affirmed B1(hyb)/ B2(hyb)
....BACKED Subordinate, Affirmed Ba3
....Adjusted Baseline Credit Assessment,
Affirmed ba2
....Baseline Credit Assessment, Affirmed
ba2
....LT Counterparty Risk Assessment,
Affirmed Ba1(cr)
....ST Counterparty Risk Assessment,
Affirmed NP(cr)
Outlook Actions:
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies 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 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.
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.
Semyon Isakov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
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
