Fitch affirms ratings for Russian subsidiaries of Unicredit, Citi, Raiffeisenbank
LONDON/MOSCOW. July 11 (Interfax) - International ratings agency Fitch Ratings has affirmed the Long-term Issuer Default Ratings of CJSC Raiffeisenbank and CJSC Citibank at 'BBB+' with a stable outlook and CJSC UniCredit Bank's Long-term Issuer Default Rating at 'BBB' with a negative outlook, the agency said in a press release.
The three banks' IDRs, National Ratings and CJSC Raiffeisenbank's senior debt ratings are driven by potential support from foreign shareholders. CJSC UniCredit Bank is 100%-owned by UniCredit S.p.A. (UC; BBB+/Negative) through its Vienna-based subsidiary UniCredit Bank Austria AG (UBA; A/Stable). CJSC Raiffeisenbank is a 100%-subsidiary of Raiffeisen Bank International AG (RBI, A/Stable). CJSC Citibank is fully-owned by Citigroup Inc. (A/Stable), Fitch wrote.
The affirmation of the three banks' Support Ratings at '2' reflects Fitch's view that their parents will continue to have a strong propensity to support these banks given the strategic importance of the Russian market for the parents, the high level of operational and management integration between the banks and their parents, common branding and importance for group operational performance (in the case of CJSC Raiffeisenbank), the press release said.
Fitch notches CJSC UniCredit Bank's Long-term IDRs down once from UC's Long-term IDR. The negative outlook on CJSC UniCredit Bank's Long-term IDRs mirrors that on UC's Long-term IDR. If UC was downgraded, CJSC UniCredit Bank's Long-term IDR and National Rating would also be downgraded. Any further downside risk for CJSC UniCredit's Long-term IDR would likely be limited to one notch, given its 'bbb-' VR. CJSC UniCredit Bank's ratings could stabilize at their current levels if the outlook on UC was revised to stable, Fitch reported.
The Long-term IDRs, National Ratings of CJSC Raiffeisenbank and CJSC Citibank and senior debt ratings of CJSC Raiffeisenbank are currently constrained by Russia's Country Ceiling (BBB+) and could be upgraded or downgraded if a change in Russia's sovereign ratings resulted in a change in the Country Ceiling. A two-notch downgrade of either RBI or Citigroup could also drive a downgrade of their Russian subsidiaries, although this is not currently anticipated given the Stable Outlooks on the parents' ratings, the press release said.
According to Fitch, the affirmation of the three banks' VRs at 'bbb-' reflects the banks' continued track record of solid financial performance; below sector average credit costs resulting from access to better quality customers and sound risk management controls; comfortable capital and liquidity positions; generally stable funding base, resulting in below-peers' funding costs; moderate loans/deposits ratios (below 100% at end-2012 and more conservative at around 50% at CJSC Citibank) and effective cost controls.
The VRs also factor in the sluggish performance of the Russian economy (Fitch forecasts GDP growth to fall to 2.2% in 2013 from 3.4% in 2012 and to pick up only moderately to 3.0% in 2014) and increasing competitive pressures, while all the three banks have modest market shares in a sector dominated by state-owned banks. The VRs also factor in significant foreign currency lending and borrower concentrations at CJSC Raiffeisenbank and CJSC UniCredit Bank, the still large real estate exposure at CJSC Raiffeisenbank, depositor concentrations at CJSC UniCredit Bank and franchise limitations of CJSC Citibank, Fitch said in the press release.
Operating returns remained healthy (with operating ROAE in the range of 20%-23% for the three banks in 2012), supported by well-established customer franchises. Internal capital generation as well as an equity injection for CJSC UniCredit Bank, underpinned capital ratios. Asset quality remained stable. At end-Q1 2013, CJSC Raiffeisenbank reported NPLs (loans overdue by more than 90 days) of 4.4% of gross loans and a Basel II Tier 1 ratio of 18.93%. At end-2012, CJSC UniCredit Bank reported NPLs of 3.2% and a Basel II Tier 1 ratio of 13.7%; CJSC Citibank maintained exceptionally good loan quality (with corporate NPLs below 1% at end-2012 and less than 1% NPL generation in retail), with the regulatory capital ratio expected to remain sound at above 15% even after a planned dividend payment in 2013, the press release said.
Fitch said liquidity cushions are comfortable, protecting against possible volatility in the concentrated corporate deposit base. CJSC Raiffeisenbank and CJSC UniCredit Bank remain net creditors to their parent institutions, reflecting excess liquidity from short-term customer deposits.
Upside potential for the VRs is limited given the current level of Russia's sovereign ratings (BBB/Stable), the banks' moderate market shares and likely cyclical performance of the Russian economy and therefore the banks. An unexpected sharp deterioration in asset quality, or markedly higher funding costs for CJSC Raiffeisenbank and CJSC UniCredit Bank, resulting from an increase in problems at their parent banks, undermining their business models, could generate downward pressure on the VRs, Fitch said.
The rating actions are as follows:
