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Rating Action:

Moody's upgrades GE Money Bank to Ba2 (Russia)

18 Mar 2011

Outlook is stable

Moscow, March 18, 2011 -- Moody's Investors Service has upgraded the long-term local and foreign currency deposit ratings of Russia-based GE Money Bank CJSC (GEMB) to Ba2 from Ba3. At the same time, the bank's Not Prime short-term local and foreign currency deposit ratings, and an E+ bank financial strength rating (BFSR) were affirmed. Concurrently, Moody's Interfax Rating Agency raised the bank's long-term National Scale Rating (NSR) to Aa2.ru from Aa3.ru. Moscow-based Moody's Interfax is majority owned by Moody's, a leading global rating agency. The outlook on all ratings is stable, while the NSR carries no specific outlook.

Moody's assessment is based on GEMB's publicly available unaudited financial statements for 2010 prepared under Russian GAAP, as well as the bank's non-public management reports for the same year. Moody's parental support assumptions for GEMB are based on a history of ownership, track record of support, and our discussions with the management of GEMB and its parent - General Electric Capital Corporation (GECC; Aa2/Stable).

RATINGS RATIONALE

The rating action is driven by the improvements in GEMB's stand-alone credit profile. The bank's E+ BFSR, which now translates into a Baseline Credit Assessment (BCA) of B1 compared to B2 previously, is supported by improvements in GEMB's asset quality, profitability, and funding base. Other factors supporting the upgrade include a stable capitalisation and improved financial efficiency. At the same time, GEMB's BFSR remains constrained by the bank's moderate commercial franchise and its exposure to high credit risk in retail lending.

GEMB's asset quality improved in 2010, following a deterioration in 2008-2009 due to the economic crisis and loss of employment by borrowers. The bank's steps to improve asset quality produced adequate results, and included lower loan approval rates and enhanced collection procedures. The bank's problem loan ratio (overdue by more than 90 days) decreased in 2010, from 3.2% in 2009, according to the information provided by management. Loans written-off and sold decreased two times at YE2010, compared to 18.5% of gross loans in 2009. Moody's expects asset quality to improve further in 2011, as the bank's loans that were originated in 2008-2009 have mostly matured and new loan vintages appear to be of good quality.

GEMB achieved a very sound 8% ROA for 2010, as improved asset quality allowed the bank to channel less of its pre-provision income into loan loss provisions: 22% in 2010, compared to a very high 105% in 2009. Moody's expects the bank to maintain a good profitability in 2011, as the cost of risk has stabilised at a five-year low of 3%. The bank maintains a good recurring earning power (pre-provision income / average assets): 13% at YE2010, a level that is three times higher than the sector average. Core profitability is supported by the wide net interest margin of 21% at YE2010.

The bank is making progress in funding diversification, as the share of customer deposits increased to around one-third of liabilities at YE2010, from 20% in 2009. GEMB is predominantly funded by the parent: around 70% of funding was provided by GECC at YE2010, and as such is considered stable. The bank's capitalisation is sound, with 22.6% total CAR at YE2010 (Russian GAAP). Capitalisation was supported in 2010 by the bank's strong internal capital generation that allowed for a 37% increase in the capital base. Capitalisation is expected to remain strong, due to sound profitability and moderate growth in risk assets in 2011.

Moody's notes that it sees a limited upward potential for GEMB's stand-alone ratings in the medium term, as a higher rating would require fundamental improvements that are difficult to achieve. Those include, but not limited to, a much stronger commercial franchise evidenced by the bank's market share, network and product mix, and tangible diversification in liabilities which remain dominated by parental funds.

GEMB's global local currency (GLC) deposit rating of Ba2 is based on the bank's BCA of B1 and two notches of support from parent GECC. Moody's expects a moderate probability of support to GEMB from GECC in case of need, based on the former's full integration into the parent's operations, limited size, and reputation considerations. The rating agency notes that GECC is divesting or decreasing some of its non-core businesses, including the consumer segment

that comprises GEMB. We do not incorporate any probability of systemic support from Russia in GEMB's ratings, because the bank has limited systemic importance.

The principal methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

(Starting November1, 2010 the following text will be added to Press Releases where Russian NSR Ratings are referenced. Please note this is not a regulatory requirement)

Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ru" for Russia. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

ABOUT MOODY'S AND MOODY'S INTERFAX

Moody's Interfax Rating Agency (MIRA) specializes in credit risk analysis in Russia. MIRA is controlled by Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets. Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE: MCO).

The previous rating action on GEMB was on July 05, 2010, when Moody's has assigned its first-time global scale ratings to the bank: a Ba3 long-term and Not Prime short-term local and foreign currency deposit ratings, and an E+ BFSR. Concurrently, Moody's Interfax Rating Agency assigned a Aa3.ru long-term National Scale Rating (NSR) to the bank.

Headquartered in Moscow, GEMB is a consumer finance bank with assets of RUB23 billion as at 31 December 2010. The bank operated through around 40 offices and 100 kiosks in 10 Russian regions. GEMB is fully owned by GECC, the financial arm of General Electric Corporation.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, and public information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Moscow
Eugene Tarzimanov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

London
Yves Lemay
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Eastern Europe LLC
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Moody's upgrades GE Money Bank to Ba2 (Russia)
No Related Data.
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