-- Pressure on BANK ROSSIYA's projected capitalization has eased thanksto its revised growth expectation, and we now expect that BANK ROSSIYA's RACratio before diversification adjustments will remain substantially above 5% in2012-2014.
-- We have revised our view of BANK ROSSIYA's capital and earnings to"moderate" from "weak".
-- We are raising our long-term and national scale ratings on BANKROSSIYA to 'BB-/ruAA-' from 'B+/ruA' and affirming the 'B' short-term rating.
-- The stable outlook reflects our expectation that the bank willmaintain moderate capitalization, given its revised growth strategy and soundearnings generation capacity over the next 12-24 months.
Rating ActionOn Oct. 9, 2012, Standard & Poor's Ratings Services raised its long-termissuer credit rating on BANK ROSSIYA to 'BB-' from 'B+' and affirmed itsshort-term rating at 'B'. The outlook is stable. We also raised the Russianational scale rating on BANK ROSSIYA to 'ruAA-' from 'ruA'.
The upgrade reflects Standard & Poor's view of easing pressure on BANKROSSIYA's projected capitalization from reduced future growth targets andcontinued sound profitability.
As a result, we believe that bank's risk-adjusted capital (RAC) ratio willremain consistently above 5% before adjustments for diversification in2012-2014.
Our base-case scenario includes the possible consolidation of Sobinbank, whichBANK ROSSIYA has controlled since August 2010, by the end of 2013. Our revisedgrowth expectation for 2013-2014 is 30% lower than our previous expectations.But we expect BANK ROSSIYA's consolidated balance sheet to increase by about25% by the end of 2013, compared with BANK ROSSIYA's stand-alone one as ofyear-end 2011. We also project positive effects on the net interest margin,limited effects on provisioning needs, and certain economy of scale. We do notexpect any sizable capital injections over the next two years, nor otheracquisitions.
BANK ROSSIYA ranks among the Russia's 20-largest financial institutions andhad total assets of Russian ruble (RUB) 308.8 billion (about $9.4 billion) asof June 30, 2012. The bank's largest shareholders include Yuriy Kovalchuk(30.33%) and JSC Gazprom gas distribution (12.27%), the latter of which is anaffiliate of OAO Gazprom (BBB/Stable/A-2), the world's largest gas producer.
With a market share of about 1% in terms of domestic customer deposits, weconsider BANK ROSSIYA to have "moderate" systemic importance. We classify theRussian government as "supportive" toward banks domiciled in the country,which provides a one-notch rating uplift above the stand-alone credit profile(SACP). The bank has several large investments in the financial industry andmedia through subsidiaries, including its 51% stake in subsidiary OJSC Sogaz(BBB-/Stable/--; Russia national scale 'ruAA+'), one of the largest insurancegroups in Russia. We think that, at present, these holdings are a neutralrating factor.
In addition to "moderate" capital and earnings, our ratings on BANK ROSSIYAreflect the 'bb' anchor for a commercial bank operating only in Russia and ourview of the bank's "moderate" business position, "moderate" risk position,"average" funding, and "adequate" liquidity. The stand-alone credit profile(SACP) is 'b+'.
The stable outlook reflects our base-case scenario, with a possibleconsolidation of Sobinbank by the end of 2013, and our expectation that BANKROSSIYA will continue its growth strategy over the next 12-24 months. Weexpect that this strategy will bring some reduction in concentrations in theloan portfolio and funding and improve its net interest margin, but that itcould potentially slightly weaken BANK ROSSIYA's asset quality metrics.
We could lower the ratings if BANK ROSSIYA's financial profile were todeteriorate notably, especially if its growth significantly exceeds ourrevised expectations and leads to renewed pressure on capitalization levels,with the RAC ratio falling below 5%. We could also lower the ratings if we seesignificant operational risks materializing as a result of the realization ofthe consolidation. The deposit base is very concentrated and reliant on somelarge depositors, including related parties. We could also lower the ratingsif we perceive risks on increasing instability of these large deposits, as itwould indicate a weakening of the bank's funding profile.
A positive rating action is currently a remote scenario. We could raise theratings if the bank's business position improved to "adequate" from"moderate", observed through significant diversification and franchise growth.Improvements in the risk position, in particular a significant decrease inconcentrations, could also foster an upgrade, although in our opinion such asituation seems further in the future than our two-year rating horizon.
Ratings Score SnapshotTo FromIssuer Credit Rating BB-/Stable/B B+/Stable/BRussia National Scale RatingruAA- ruASACP b+ bAnchor bb bbBusiness Position Moderate (-1) Moderate (-1)Capital and Earnings Moderate (0) Weak (-1)Risk Position Moderate (-1) Moderate (-1)Funding and Average AverageLiquidity and Adequate (0) and Adequate (0)Support 0 0GRE Support 0 0Group Support 0 0Sovereign Support +1 +1Additional Factors 0 0
Related Criteria And ResearchAll articles listed below are available on RatingsDirect on the Global CreditPortal, unless otherwise stated.
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions,Nov. 9, 2011
-- Group Rating Methodology And Assumptions, Nov. 9, 2011
Ratings ListUpgraded; Ratings AffirmedTo FromBANK ROSSIYACounterparty Credit Rating BB-/Stable/B B+/Stable/BRussia National Scale Rating ruAA- ruA
Complete ratings information is available to subscribers of RatingsDirect onthe Global Credit Portal at
. All ratings affectedby this rating action can be found on Standard & Poor's public Web site at. Use the Ratings search box located in the leftcolumn.(New York Ratings Team)