Fitch Revises Russian Standard Bank's outlook to positive, affirms ratings
MOSCOW. May 10 (Interfax) - Fitch Ratings has revised JSC Russian Standard Bank's (RSB) rating Outlook to Positive from Stable and affirmed its Long-term Issuer Default Rating (IDR) at 'B+', the agency said in a statement.
The revision of the Outlook reflects Fitch's expectation that the bank will return to growth, after three years of deleveraging, which should help improve performance through improved revenue generation and increased scale. The agency also views positively the bank's reduced reliance on wholesale borrowings and demonstrated ability to repay about USD4bn of market funding during the crisis. In addition, the ratings continue to be underpinned by the bank's broad franchise, strong margins and sound track record of asset quality management.
At the same time, some uncertainty remains about RSB's long-term prospects given the increasing competition in the Russian consumer lending market. The recent significant weakening of capitalisation is also negative for the bank's credit profile, while the stability of the recently acquired retail deposit base has yet to be tested.
RSB plans loan growth of 25%-30% in 2011, supported by continued inflow of retail deposits, which already accounted for almost 60% of end-2010 liabilities. However, delivering this growth may still prove to be challenging due to market size constraints and increased competition.
Fitch considers that the targeted overall credit loss rate of below 7% in 2011 is ambitious, given that underwriting standards for point of sale (POS) and cash loans have been lowered to gain market share. However, there is some flexibility in this metric, considering the break-even loss rate is around 12%, according to Fitch's estimates.
About 80% of retail deposits are RUB-denominated, which eliminates hedging risks, one of the agency's previous concerns. Refinancing risk is also limited, and current liquidity is comfortably sufficient to meet remaining 2011 debt repayments. Part of the liquidity buffer will be absorbed by planned loan growth, although RSB aims to keep sufficient liquidity reserves to meet a 30% outflow of deposits.
Fitch currently views capitalisation as adequate, rather than a rating strength as previously. Although the bank reported a Basel I tier 1 ratio of 18.7% at end-2010, Fitch's core capital / risk weighted assets ratio was a more moderate 12%, mainly due to the deduction of an investment in the equity of a parent company. In the agency's view, internal capital generation should be broadly sufficient to support planned loan growth. However, in light of recent equity distributions and now lower capital ratios, the shareholder's approach to capital management has become more important as a rating factor.
The Long-term IDR may be upgraded if the bank is successful in delivering its growth strategy and improving profitability, while maintaining acceptable levels of credit risk and capital. The Outlook may be revised to Stable if performance remains muted, capital weakens or the bank runs down its liquidity cushion while increasing its dependence on retail deposits.
Long-term IDR: affirmed at 'B+'; Outlook changed to Positive from Stable
Senior unsecured debt: affirmed at 'B+'; Recovery Rating 'RR4'
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
The bank was Russia's 31st largest by assets, according to the Interfax-100 ranking at the end of Q1 2011.