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Rating Action:

Moody's upgrades RCB Bank's deposit ratings to B1 from B3

29 Aug 2017

Limassol, August 29, 2017 -- Moody's Investors Service (Moody's) has today upgraded RCB Bank's long term local- and foreign-currency deposit ratings to B1 from B3 and its baseline credit assessment to b2 from b3. Today's rating action concludes the review initiated on 19 May 2017 and reflects (1) RCB Bank's strong solvency as well as Moody's expectation that the bank will continue to grow its standalone business and strengthen its franchise and (2) Moody's expectation that RCB Bank will maintain its strong links with Bank VTB, JSC (Bank VTB) (long-term local currency deposits: Ba1 stable, BCA: b1) one of its main shareholders with 46.3% stake, which has led the agency to incorporate one notch of rating uplift in RCB Bank's deposit ratings to capture a moderate probability of support from Bank VTB in case of need.

The outlook on the long-term deposit ratings was changed to stable reflecting Moody's expectation that the bank's financial fundamentals will remain broadly unchanged over the next 12-18 months.

Please see the end of this press release for a full list of affected ratings.

RATINGS RATIONALE

THE UPGRADE OF THE STANDALONE BCA TO B2

The upgrade of the BCA to b2 from b3 reflects RCB Bank's strong solvency, reflected in high capital and low levels of problem loans as well as Moody's expectation that the bank will continue to grow its standalone business and strengthen its franchise.

Although currently most of RCB Bank business stems from its links with Bank VTB, with more than 60% of RCB Bank's loans guaranteed by Bank VTB, RCB Bank has been strengthening its stand-alone franchise over the last few years. Moody's expects the bank to gradually grow further its standalone operations both with foreign customers based in Cyprus and to a lesser extent with Cypriot customers.

RCB Bank maintains a strong solvency position. As of December 2016, the ratio of the bank's shareholder's equity to total assets improved to 5.8% from 4.6% the year before, while its Tier 1 capital ratio was a high 20.79%. At the same time, RCB Bank's ratio of non-performing loans (NPLs) to gross loans stood at a low 0.83%. The bank is further buffered by its high coverage of problem loans, with the ratio of loan loss reserves to NPLs increasing to 90.3% in December 2016 from 82.1% in December 2015, and its high profitability, with a 1.0% return on assets as of December 2016.

DEPOSIT UPLIFT DUE TO AFFILIATE SUPPORT

RCB Bank's deposit ratings now incorporate one notch of uplift reflecting Moody's view of a moderate likelihood of support from Bank VTB in case of need. Although in 2014 VTB Bank's ownership in RCB Bank declined to 46.3% from 60% previously, RCB continues to have strong ties with Bank VTB which were tested during the financial crisis in Cyprus. Bank VTB continues to fund and guarantee most of RCB Bank's loans and Moody's expects RCB Bank to maintain these links while it continues to develop its standalone franchise in parallel, and this view underlies the decision too incorporate uplift from affiliate support into RCB Bank's deposit ratings.

MOODY'S LOSS GIVEN FAILURE ANALYSIS

In its application of its Loss Given Failure analysis for RCB Bank, Moody's continue to incorporate a high, 62%, proportion of corporate deposits in the bank's liability structure which is in line with its mainly corporate business focus. Moody's now also assumes a 25% outflow of corporate deposits prior to failure, an assumption applied to all European banks. The revised LGF assumptions do not have an impact on RCB Bank's ratings.

WHAT COULD MOVE THE RATINGS UP/DOWN

RCB Bank's ratings could be upgraded following a material strengthening in its standalone franchise leading to reduced concentration and lower reliance on wholesale funding, while maintaining its current strong capital buffers and low levels of problem loans. An improvement in the credit risk profile of Bank VTB and/or an increased likelihood of support in Moody's view, could also lead to an upgrade of RCB Bank's ratings.

RCB Bank's ratings could be downgraded following a sharp rise in problem loans which would erode its profitability and weaken its capital buffers, or a material decline in capital due to high growth. A reduced capacity or willingness by Bank VTB to support RCB Bank in case of need could also result in a downgrade

List of affected ratings

Upgrades:

....LT Bank Deposits, Upgraded to B1 Stable from B3 Rating under Review

....Adjusted Baseline Credit Assessment, Upgraded to b1 from b3

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

....LT Counterparty Risk Assessment, Upgraded to Ba2(cr) from B1(cr)

Affirmations:

....ST Bank Deposits, Affirmed NP

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

Outlook Actions:

....Outlook, Changed To Stable From Rating Under Review

The principal methodology used in these ratings was Banks published in January 2016. 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.

Melina Skouridou, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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