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Rating Action:

Moody's upgrades Bank Saint-Petersburg's foreign currency deposit rating to Ba3, stable outlook

04 Jul 2019

London, 04 July 2019 -- Moody's Investors Service has today upgraded to Ba3 from B1 the long-term foreign currency deposit rating of Bank Saint-Petersburg PJSC (BSPB) and changed the outlook on this rating to stable from positive. Concurrently, Moody's upgraded the bank's Baseline Credit Assessment (BCA) and adjusted BCA to ba3 from b1. Moody's has also upgraded BSPB's long-term Counterparty Risk Assessment (CR Assessment) to Ba2(cr) from Ba3(cr) and upgraded the bank's long-term local and foreign currency Counterparty Risk Ratings (CRR) to Ba2 from Ba3. BSPB's Not Prime short-term foreign currency deposit rating, Not Prime(cr) short-term CR Assessment, as well as its Not Prime short-term local and foreign currency CRR were affirmed.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

According to Moody's, the ratings upgrade reflects the continuous improvement of BSPB's asset quality and capital adequacy metrics, coupled with the sustainable good recurring profitability and stable funding and liquidity profiles.

BSPB's problem loan (PL) ratio declined to 10.6% as of 31 March 2019 from 14.1% reported as of the beginning of 2018 and the coverage of PL by loan-loss reserves (LLR) improved to 94% from 78% over the same period. Moody's estimates that BSPB's LLR coverage ratio is five to ten percentage points above the sector average. The rating agency expects the bank's asset quality metrics to continue improving gradually over the next 12 to 18 months.

In 2018, BSPB posted RUB9.0 billion in net profit under IFRS, which translated into a return on average assets of 1.5% (2017: 1.3%). The bank's bottom-line profitability is underpinned by a gradual decline in credit losses, measured as loan-loss provisions as a percentage of average gross loans, which fell to 1.9% in the first quarter of 2019 (annualised) from 2.1% in 2018 and 2.7% in 2017. Another factor supporting the bank's bottom-line result is its historically strong cost efficiency, with its annual cost-to-income ratio hovering around 40%-45% over the past five years. BSPB's net interest margin (NIM) is modest at around 3.7%. At the same time, the bank's NIM proved to be less susceptible to volatile interest rate environment compared to the sector-average NIM, as demonstrated through the second half of 2018 and the first quarter of 2019. Moody's expects BSPB's profitability to continue benefiting from a further steady decline in credit losses over the next 12-18 months because most of the bank's PL have already been adequately provisioned.

BSPB's capital adequacy benefits from the bank's sustainable internal capital generation and the modest growth in its risk-weighted assets (RWA). Moody's estimates that the bank's ratio of tangible common equity (TCE) to RWA of 13.7% reported as of 31 March 2019 (an increase from the 12.2% ratio reported as of the beginning of 2018) will be sustained over the next 12-18 months.

BSPB displays stable funding and liquidity profiles because it benefits from the entrenched market position and strong brand recognition in its domicile City of St. Petersburg and the surrounding Leningrad Oblast. As of 31 March 2019, core customer funding accounted for 69% of the bank's total non-equity funding, with the proportion of granular retail deposits at around 61% of the total customer funding. BSPB's liquidity buffer is robust, with cash, cash equivalents, dues from banks and unencumbered liquid securities consistently exceeding 25% of the bank's total assets.

WHAT COULD MOVE THE RATINGS UP / DOWN

BSPB's Ba3 foreign currency long-term deposit rating is relatively high in Russia's context, therefore the potential for upgrade is limited. A pre-requisite for any further positive rating actions would be a substantial improvement in the bank's asset quality and strengthened and more sustainable profitability metrics.

BSPB's ratings might be downgraded, or the rating outlook might be revised to negative from stable, in case of the bank's failure to sustain the long-term improving trends in its solvency metrics, in contrast with Moody's current central scenario expectations.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in the City of St. Petersburg, Russia, BSPB reported -- at 31 March 2019 - total assets of RUB651 billion and total shareholders' equity of RUB76 billion, according to its unaudited financial statements prepared under IFRS. BSPB's net IFRS profits for the first quarter of 2019 was RUB1.3 billion; the bank's IFRS profits in 2018 was RUB9.0 billion.

LIST OF AFFECTED RATINGS

Issuer: Bank Saint-Petersburg PJSC

..Upgrades:

.... Long-term Bank Deposits, Upgraded to Ba3 from B1, Outlook Changed To Stable From Positive

.... Adjusted Baseline Credit Assessment, Upgraded to ba3 from b1

.... Baseline Credit Assessment, Upgraded to ba3 from b1

.... Long-term Counterparty Risk Assessment, Upgraded to Ba2(cr) from Ba3(cr)

.... Long-term Counterparty Risk Ratings, Upgraded to Ba2 from Ba3

..Affirmations:

.... Short-term Bank Deposits, Affirmed NP

.... Short-term Counterparty Risk Assessment, Affirmed NP(cr)

.... Short-term Counterparty Risk Ratings, Affirmed NP

..Outlook Action:

....Outlook Changed To Stable From Positive

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.

Olga Ulyanova
VP - Senior Credit Officer
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

No Related Data.
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