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Rating Action:

Moody's upgrades Bank Uralsky Financial House's deposit ratings to B2 from B3; stable outlook

12 Dec 2018

London, 12 December 2018 -- Moody's Investors Service ("Moody's") today upgraded Bank Uralsky Financial House's (UralFD) Baseline Credit Assessment (BCA) and adjusted BCA to b2 from b3, its long-term local and foreign currency deposit ratings to B2 from B3, long-term Counterparty Risk Assessment (CR Assessment) to B1(cr) from B2(cr), and long-term Counterparty Risk Ratings (CRR) to B1 from B2. The outlook on the long-term deposit ratings changed to stable from positive.

The rating agency also affirmed the bank's short-term local and foreign currency deposit ratings and CRRs of Not Prime and its short-term CR Assessment of Not Prime(cr).

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

RATINGS RATIONALE

The BCA upgrade to b2 from b3 reflects recent improvements in UralFD's financial performance, in particular, its net financial result and capital adequacy, which Moody's expects to remain good and sustained in the long term and commensurate with those of B2-rated peers.

The bank posted robust net financial result of RUB320 million in 2017 well above RUB36 million a year before amid strong net interest margin (5.3%), declined provisioning charges (2.7% of average gross loans) and material trading gains from securities of RUB221 million.

For the first nine months of 2018 the bank reported net income of RUB91 million, which translates into 0.5% annualized return on average assets compared with 1.5% in 2017 and 0.2% in 2015-16. The recent net financial result was distorted by additional provisioning charges incurred in Q1-Q2 2018 following implementation of IFRS 9 accounting standard. Barring material external shocks, the rating agency expects that UralFD's profitability in the next 12-18 months will be supported by its healthy net interest margin (4.9% over the first nine months of 2018), good pre-provision profitability (2.7% of average assets) as well as normalized credit costs.

The rating action also reflects UralFD's strengthened capital buffers. As of 30 September 2018, the bank's tangible common equity increased to 12.9% of total assets compared with 11.2% at year-end 2017 and 10.4% at year-end 2016. Moody's expects somewhat improvement next year thanks to internal capital generation amid modest loan book expansion.

Following work-out of legacy loans and write-offs the bank improved its asset quality while the problem loan ratio declined to 15.0% at year-end 2017 from 17.8% a year before. As of 30 September 2018 following adoption of IFRS 9 the bank reported problem loans (defined as stage 3 lending) at 17.6% of gross loans, along with sufficient problem loan coverage at 84%. The rating agency believes that legacy problem loans have crystallized and expects a steady decline of problem loan ratio in the next 12-18 months.

As of 30 September 2018 the bank reported liquid cushion at about 30% of total assets. Its funding structure reflects high reliance on customer deposits, which accounted for around 96% of total liabilities at the end of September 2018. UralFD's funding and liquidity profiles benefit from its established deposit-taking franchise, which provides the bank with a granular and stable funding source. Moody's expects UralFD's liquidity profile to remain healthy over the next 12-18 months.

WHAT COULD MOVE THE RATINGS UP/DOWN

A sustained track record of improved asset quality along with solid profitability could lead to an upgrade of UralFD's BCA and long-term ratings or the outlook change to positive, provided there is no significant deterioration in capital adequacy.

The bank's BCA and deposit ratings could be downgraded, or the outlook on its long-term deposit ratings could be revised to negative from stable if it fails to generate sustainable positive net financial result or its asset quality or capital adequacy remarkably deteriorates.

LIST OF AFFECTED RATINGS

Issuer: Bank Uralsky Financial House

Upgrades:

....LT Bank Deposits , Upgraded to B2 from B3, Outlook Changed to Stable from Positive

....Adjusted Baseline Credit Assessment, Upgraded to b2 from b3

....Baseline Credit Assessment, Upgraded to b2 from b3

....LT Counterparty Risk Assessment, Upgraded to B1(cr) from B2(cr)

....LT Counterparty Risk Rating, Upgraded to B1 from B2

Affirmations:

....ST Bank Deposits, Affirmed NP

....ST Counterparty Risk Rating, Affirmed NP

....ST Counterparty Risk Assessment, Affirmed NP(cr)

Outlook Action:

....Outlook Changed to Stable from Positive

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.

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.

Petr Paklin
Asst Vice President - 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

No Related Data.
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