Moody's affirms Tatfondbank 'E+/B2/Not Prime' ratings with 'negative' outlook
MOSCOW. Aug 10 (Interfax) - International rating agency Moody's Investors Service has affirmed Tatfondbank's bank financial strength rating at 'E+', and its long and short-term ratings for deposits in foreign and national currency at 'B2/Not Prime' with ratings outlook of 'negative,' Moody's said in a press release.
"Moody's affirmation of Tatfondbank's ratings is based on the bank's
audited financial statements for 2010 prepared under IFRS [International Financial Reporting Standards], and its H1 2011 un-audited results prepared under local GAAP," Moody's said.
"According to Moody's, the E+ BFSR of Tatfondbank, which maps to a standalone credit strength of B3, reflects the bank's weak financial
fundamentals, such as relatively weak asset quality, a high level of
single borrower concentration, a large volume of related-party business,
and weak core profitability. The ratings are supported, however, by
Tatfondbank's entrenched position in the banking market in the Republic
of Tatarstan (Ba1, stable outlook) -- a region located in the European
part of Russia," the press release says.
"The rating agency notes that Tatfondbank's impaired corporate loans
increased to 19% of the respective portfolio at year-end 2010, compared to 12% at year-end 2009. Another 10% of corporate loans was restructured at year-end 2010, compared to 18% in 2009. The increase in impaired loans coupled with a decrease in restructured loans signals a high impairment for restructured loans. A high share of single- and related-party loans undermines asset quality: the top-20 loans accounted for 367% of Tier 1 capital at year-end 2010, while related-party exposures (net loans, securities, and receivables) accounted for 89%. At year-end 2010, the bank also had investment property (land and real estate) for around RUB4.2 billion, which immobilized 65% of the bank's Tier 1 capital.
"Tatfondbank's total capital adequacy ratio (CAR) improved to 16.1% (Basel 1) at year-end 2010, from 14.3% in 2009, due to subordinated loans of RUB2.1 billion (around US$74 million) received by the bank from a company owned by Tatarstan in late 2010. While the CAR improved, the bank's Tier 1 ratio decreased to 12.0% in 2010, from 14.2% in 2009, because of the growth in risk assets. Moody's observes that Tier 1 capitalization should be supported by the planned RUB2 billion capital increase in late 2011.
"In Moody's opinion, Tatfondbank's core revenues (net interest income and fees) are weak and were insufficient to cover its operating expenses in 2010. Core profitability is likely to remain modest, due to the bank's relatively high cost base.
"The negative outlook on the E+ BFSR reflects the risk that Tatfondbank's asset quality and core profitability in 2011 would not recover to levels achieved prior to the global financial crisis. Moody's notes that a
revision of the outlook to stable would require evidence of an improved
net interest margin, a material decrease in impaired loans, and a
reduction in single- and related-party exposures.
"Tatfondbank's B2 long-term debt and deposit ratings are based on the bank's B3 standalone credit strength and Moody's assessment of a moderate probability of support that could be extended to the bank in case of need by the government of Tatarstan. As such, the bank's supported ratings benefit from one notch of support. Moody's opinion is backed by
Tatfondbank's market share of around 11% in retail deposits in Tatarstan,
and the fact that the regional government indirectly controls a 33.4%
stake in Tatfondbank through one of its companies," Moody's said.