Moody's changes outlook on Rossiyskiy Kredit Bank's Caa1 ratings to negative from stable
MOSCOW. Nov 28 (Interfax) - Moody's Investors Service has affirmed and changed to negative from stable the outlook on Rossiyskiy Kredit Bank's Caa1 long-term deposit ratings, the agency said in press release.
Concurrently, Moody's has affirmed the bank's Not-Prime short-term deposit ratings as well as the standalone E bank financial strength rating (BFSR), which is equivalent to a baseline credit assessment (BCA) of caa1. The BFSR maintains a stable outlook.
Moody's rating action reflects our view of the risks associated with (1) the rapid growth of Bank Rossiyskiy Kredit's loan book; (2) the deterioration of the bank's capital adequacy level; and (3) the bank's increasing reliance on interbank funding.
After the change in ownership of Bank Rossiyskiy Kredit in mid-2012, the bank's loan book grew sharply and reached RUB44.4 billion as at end-September 2013, a threefold increase from RUB13.3 billion reported as at end-September 2012 (under local GAAP). In Moody's view, such rapid growth poses higher risks of asset quality erosion, particularly considering: (1) the predominance of high single-name concentrations associated with this growth, with the largest loans accounting for about 25% of the bank's regulatory capital; and (2) most of the new exposures are loans granted in order to finance purchases of real estate assets and securities.
Bank Rossiyskiy Kredit's regulatory capital adequacy ratio declined sharply to 11.1% as at end-September 2013 from 22.5% as at year-end 2012 owing to the bank's weak profitability and the rapid loan book growth. Moody's notes that for the first nine months of 2013, the bank's revenue (in accordance with local GAAP) hardly covered its operating expenses,
thus resulting in modest profits, mostly because of non-recurring items such as reversal of loan loss reserves.
Moody's also notes liquidity risks associated with Bank Rossiyskiy Kredit's increasing reliance on short-term interbank funding. As at end-September 2013, borrowings from banks reached 45% of total non-equity funding (0% as at year-end 2011). Most of these borrowings are of a short-term nature and are predominantly used to finance the aforementioned loan growth.
Moody's notes that Bank Rossiyskiy Kredit's ratings have limited upside potential, as captured in the negative outlook. However, the outlook can be changed to stable if the bank improves its capital adequacy and profitability.
Moody's says that Bank Rossiyskiy Kredit's ratings could be downgraded if the ongoing rapid loan growth exerts further negative pressure on the bank's financial fundamentals such as asset quality and profitability.
Rossiyskiy Kredit was Russia's 98th largest bank by assets, according to the Interfax-100 ranking at the end of H1 2013.