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Rating Action:

Moody's upgrades long-term debt and deposit ratings of Tinkoff Bank to B1 from B2; outlook stable

Global Credit Research - 22 Feb 2017

London, 22 February 2017 -- Moody's Investors Service has today upgraded Tinkoff Bank's (Tinkoff) long-term local- and foreign-currency deposit ratings and local-currency senior unsecured debt ratings to B1 from B2. The outlook on the long-term deposit and senior unsecured debt ratings changed to stable from positive.

Concurrently, the rating agency upgraded the bank's baseline credit assessment (BCA) and adjusted BCA to b1 from b2, the subordinated foreign-currency debt rating to B2 from B3, and the long-term Counterparty Risk Assessment (CR Assessment) to Ba3(cr) from B1(cr). Moody's affirmed the local- and foreign-currency short-term deposit ratings at Not-Prime, and the short-term CR Assessment at Not-Prime(cr).

Today's rating action primarily reflects Tinkoff Bank's resilient credit metrics through the credit cycle owing to its more sustainable business model when compared to most consumer lenders in Russia. The rating agency expects the bank will report strong financial results in the next 12-18 months along with robust capital and liquidity cushions.

RATINGS RATIONALE

The upgrade of the bank's BCA and long-term ratings is driven by: (1) proven robust financial performance through the credit cycle in 2014 -16; (2) material improvements in the bank's profitability in recent quarters, as a result of reduced funding and credit costs; and (3) Moody's expectation of strong bottom line results in 2017. The rating agency expects that the bank will maintain healthy capital adequacy and liquidity in the next 12 to 18 months.

Unlike other consumer lenders, Tinkoff Bank navigated the recent difficult years of households' overleverage and interest rate shock relatively smoothly; it remained profitable in 2014-16 and has reported improving quarterly net financial results since Q2 2015. The bank reported RUB7.3 billion net income for the nine months ended 30 September 2016, which translates into annualized return-on average assets (ROAA) and return-on-average equity (ROAE) of 6.5% and 38.9%, respectively. Strong profitability was bolstered by: (1) the decline in credit costs to 8.7% in Q3 2016 from 15.3% in Q3 2015 owing to tight risk controls and continued consumer deleveraging; and (2) the recovery of net interest income amid the declining cost of funds. Barring material external shocks, the rating agency expects the bank to post strong financial results in the next 12-18 months.

In addition, the bank's asset quality and capital adequacy levels will likely remain solid in the short term. As of Q3 2016, the bank reported a non-performing loan ratio of 10.4%, with its problem loans sufficiently covered by loan loss reserves (over 140%) and healthy capital buffers with a Tier 1 ratio of 15.2% and a total capital adequacy ratio (CAR) of 17.4% under Basel III. Moody's views these levels as robust, providing it with a sufficient cushion to absorb potential credit losses. The rating agency expects the bank's capital adequacy metrics will stabilise at the current level amid expected growth of risk-weighted assets and strong bottom line results in 2017.

WHAT COULD MOVE THE RATINGS UP/DOWN

Given the bank's relatively rapid growth rate and high level of credit risk, an upgrade is unlikely in the absence of a transition to a more fully fledged diversified banking model.

The ratings could be downgraded if: (1) material pressure on loan book quality and profitability resumed; (2) its loss absorption capacity in terms of its Tier 1 capital or non-performing loan coverage significantly deteriorated; or (3) the bank experienced funding or liquidity difficulties.

The rating agency does not expect any upward or downward movements of the bank's ratings in the next 12-18 months.

PRINCIPAL METHODOLOGY

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.

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
SUBSCRIBERS: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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