London, 22 December 2020 -- Moody's Investors Service ("Moody's") today upgraded
the long-term foreign and local currency bank deposit ratings of
Promsvyazbank (PSB) to Ba2 from Ba3. The rating agency also upgraded
the bank's long-term Counterparty Risk Assessment (CR Assessment)
to Ba1(cr) from Ba2(cr), its long-term local and foreign
currency Counterparty Risk Ratings (CRRs) to Ba1 from Ba2, and the
Baseline Credit Assessment (BCA) and Adjusted BCA to b3 from caa1.
The outlook on the long-term bank deposit ratings remains positive.
Concurrently, Moody's affirmed PSB's short-term bank deposit
ratings and short-term CRRs of Not Prime (NP), and the short-term
CR Assessment at NP(cr).
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The upgrade of the bank's BCA, Adjusted BCA and bank deposit
ratings was driven by the steady revamp of the bank's business model
and recovery of its profitability since the end of 2017 when PSB was bailed
out by the Central Bank of Russia (CBR).
Despite a difficult operating environment in Russia, PSB reported
improved profitability over the first nine months of 2020, with
an annualised return on tangible assets of 0.8%, up
from 0.7% in 2019 and 0.1% in 2018.
This result was bolstered by an improved net interest margin (NIM) of
3.1%, up from 2.9% in 2019, thanks
in part to a decline in problem loans. Credit costs remained modest
at 0.6% of the average net loan book, which reflected
the limited impact on the bank's borrowers from lockdown measures
introduced by the Russian authorities earlier this year.
Moody's assesses PSB's asset quality as weak. Although
problem loans have declined and are well provisioned, loan growth
has been very rapid and is increasingly concentrated on large companies
in the defence sector .
PSB's loss absorption buffer is good, with its Tangible Common Equity
(TCE) to risk-weighted assets (RWA) ratio of 10.7%
as of 30 September 2020, while the coverage of problem loans by
reserves was solid at 93%. The bank's rapid loan book
growth over the recent years has been supported by regular equity injections
from the state via Ministry of Finance (MinFin), in particular,
RUB25 billion in 2018 and RUB33.2 billion in 2019. In December
2020 PSB registered additional share issue of RUB31.8 billion,
which will increase TCE/RWA ratio by about 1.5 percentage points.
The bank maintained a robust liquidity buffer of 35% of total assets
as of 30 September 2020, which comprised mainly cash and equivalents,
the Russian government and CBR bonds. Customer deposits remained
the bank's main source of funding and accounted for 80% of total
liabilities as of the same date.
VERY HIGH GOVERNMENT SUPPORT
Moody's incorporates a very high likelihood of support for PSB's deposits
from the Russian government, resulting in four notches of uplift
for these ratings from the BCA of b3. This view is underpinned
by (1) 100% ownership of the bank by the state since June 2018
followed by regular equity injections by MinFin; (2) PSB's status
as a systemically important bank (SIB) with a significant market share
by assets among the ten largest Russian banks; and (3) a special
mandate to service the defence sector and its dominant market position
in state defence order. PSB's strategic objective is to service
up to 70% of Russia's defence industry by 2022, up from 60%
of state defence order this year.
POSITIVE OUTLOOK
The positive outlook reflects Moody's expectations that the bank's
business model and profitability will strengthen further supported by
increasing share in the state defence order, while its key credit
metrics such as asset quality, capital adequacy and liquidity will
remain resilient over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The bank's BCA could be upgraded if the bank proves sustainability of
its business model under the defence industry service mandate through
the cycle, or materially improves its financial and non-financial
disclosures, or further improves its solvency metrics. Moody's
could upgrade the deposit ratings if the bank's BCA was upgraded,
but this would also depend on an updated assessment of further government
support.
The bank's BCA could be downgraded if the bank's solvency or liquidity
deteriorated significantly, which is not currently expected.
The ratings could be downgraded in the unlikely event that PSB's public-sector
mandate diminished or if the Russian government appeared less likely to
continue its support to PSB or SIBs more generally.
LIST OF AFFECTED RATINGS
..Issuer: Promsvyazbank
Upgrades:
....Adjusted Baseline Credit Assessment,
Upgraded to b3 from caa1
....Baseline Credit Assessment, Upgraded
to b3 from caa1
....Long-term Counterparty Risk Assessment,
Upgraded to Ba1(cr) from Ba2(cr)
....Long-term Counterparty Risk Ratings,
Upgraded to Ba1 from Ba2
....Senior Unsecured Medium-Term Note
Program, Upgraded to (P)Ba2 from (P)Ba3
....Long-term Bank Deposit Ratings,
Upgraded to Ba2 from Ba3, Outlook Remains Positive
Affirmations:
....Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
....Short-term Counterparty Risk Ratings,
Affirmed NP
....Short-term Bank Deposit Ratings,
Affirmed NP
Outlook Action:
....Outlook, Remains Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are unsolicited.
a.With Rated Entity or Related Third Party Participation:
YES
b.With Access to Internal Documents: YES
c.With Access to Management: NO
For additional information, please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
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
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:
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