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Rating Action:

Moody's upgrades Promsvyazbank's ratings to Ba3 and affirms BCA at b1; outlook remains negative

17 Nov 2015

London, 17 November 2015 -- Moody's Investors Service has today upgraded Promsvyazbank's long-term local- and foreign-currency deposit ratings to Ba3 from B1. At the same time, Moody's has upgraded the bank's senior unsecured debt ratings to Ba3 from B1 and the senior unsecured medium-term notes programme rating to provisional (P)Ba3 from (P)B1. The rating agency also upgraded the bank's long-term counterparty risk assessment (CR Assessment) to Ba2(cr) from Ba3(cr). However, all long-term ratings remain on a negative outlook.

List of affected ratings

Upgrades:

.... LT Bank Deposits (Foreign Currency and Local Currency), Upgraded to Ba3 from B1 Negative

.... LT Counterparty Risk Assessment, Upgraded to Ba2(cr) from Ba3(cr)

.... Senior Unsecured Regular Bond/Debenture (Foreign Currency and Local Currency), Upgraded to Ba3 from B1 Negative

.... Senior Unsecured MTN (Foreign Currency), Upgraded to (P)Ba3 from (P)B1

Affirmations:

.... Baseline Credit Assessment, Affirmed b1

.... Adjusted Baseline Credit Assessment, Affirmed b1

.... ST Bank Deposits (Foreign Currency and Local Currency), Affirmed NP

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

....Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed B2

....Subordinate Regular Bond/Debenture (Foreign Currency), Affirmed B3 (hyb)

....Subordinate MTN (Foreign Currency), Affirmed (P)B2

....Other Short Term (Foreign Currency), Affirmed (P)NP

Outlook Actions:

....Outlook, Remains Negative

RATINGS RATIONALE

The upgrade of Promsvyazbank's long-term deposit and senior unsecured debt ratings to Ba3 from B1 reflects Moody's expectation that the bank will receive a moderate level of extraordinary support from the Russian authorities in case of need. This assumption of government support results in a one-notch uplift from its b1 BCA.

The upgrade follows the Central Bank of Russia's (CBR) announcement on 20 October, 2015 that it had approved the list of 10 systemically important banks and formally designated Promsvyazbank -- the eighth largest banking group in Russia by total assets -- as a systemically important financial institution.

The affirmation of Promsvyazbank's BCA reflects a moderation in the bank's negative credit factors during the second and third quarters of 2015, as reflected by: (1) Promsvyazbank's ability to strengthen its capital base as planned, and (2) the stabilisation of its earnings-generating capacity. The affirmation also reflects Promsvyazbank's adequate liquidity profile and Moody's expectation that the bank's business franchise will remain resilient to a market downturn.

NEGATIVE OUTLOOK

The negative outlook on Promsvyazbank's long term ratings reflects the persistent risks to the bank's credit profile in Russia's challenging operating environment which will continue to exert pressure on the bank's financial fundamentals given the bank's 1) high single-borrower concentration and sizable exposure to loans denominated in foreign currency; 2) still moderate albeit improved Tier 1 capital level, which will remain sensitive to exchange-rate volatility and reliant on external capital injections.

Moody's notes that in the past several months, Promsvyazbank has received additional capital both from its main shareholder and from the Russian government. Moody's expects that the recent and forthcoming capital contributions will allow the bank to keep its capital adequacy ratios from deteriorating over the next 12 months, even as it posts losses owing to increased credit costs and weaker pre-provision income amid Russia's economic recession. The rating agency expects that the bank will maintain its Tier 1 ratio above 9% and that its total capital adequacy ratio will be approximately 16% at the end of 2015, compared with 9.3% and 14.5% respectively at H1 2015 (8.0% and 13.5% at the end of 2014). Moody's also notes that the systemically important designation would benefit the bank's credit profile because it would require the bank to maintain larger loss-absorbing buffers than other Russian banks.

During H1 2015, the bank's non-performing loans (NPLs) increased to 5.3% of total loans, up from 2.9% at the end of 2014 and Moody's expects that Promsvyazbank's asset quality trend will remain negative, owing to weak economic conditions in Russia. In particular, the bank's asset quality will remain challenged by relatively high single-borrower concentration and sizable exposure to loans denominated in foreign currency. However, Moody's expects the pace of the bank's asset quality deterioration to slow down over the next 12 months, given Promsvyazbank's increased focus on large corporate borrowers with relatively high creditworthiness.

In H1 2015, Promsvyazbank reported a net loss of RUB4.8 billion (H1 2014: net profit RUB561 million) and Moody's expects that the bank will be loss-making in 2015 owing to increased provisioning expenses. At the same time, Moody's notes stabilisation of Promsvyazbank's earnings-generating capacity given its net interest margin improvement in Q3-Q4 2015 to approximately 3.5%, after having roughly halved to 2% in the first quarter. Expected easing provisioning pressure in 2016 coupled with non-recurring gains will support the bottom line and reduce losses, helping the bank to break-even by the end of next year.

Promsvyazbank benefits from a diversified liability structure and an adequate liquidity profile. The bank funds its operations mainly through client accounts (70% of total liabilities at H1 2015), and maintains a sufficient level of liquid assets. Moody's adds that the bank's designation as a systemically important bank would benefit the bank's liquidity profile because it would require the bank to maintain higher liquidity coverage ratio.

WHAT COULD MOVE THE RATINGS DOWN/UP

Negative rating actions could result from any of the following: (1) a further worsening of the operating environment which could exert additional pressure on the bank's financial fundamentals; (2) Promsvyazbank's credit costs will materially increase beyond the level currently anticipated by Moody's; (3) significantly weakened loss absorption capacity or liquidity profile.

Given the negative outlook on Promsvyazbank's ratings, any ratings upgrade in the next 12-18 months is unlikely.

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Moscow, Russia, Promsvyazbank reported total (unaudited International Financial Reporting Standards) consolidated assets of RUB1.0 billion and shareholder equity of RUB78.2 billion in Q2 2015.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Lev Dorf
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
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Yves Lemay
MD-Banking & Sovereign
Financial Institutions Group
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Moody's upgrades Promsvyazbank's ratings to Ba3 and affirms BCA at b1; outlook remains negative
No Related Data.
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