1 Dec 2010 13:28

Fitch Changes Outlooks on MBRD and Dalcombank to Positive; Affirms at 'B+'

MOSCOW. Dec 1 (Interfax) - On Tuesday, Fitch Ratings changed the Outlooks on Moscow Bank for Reconstruction and Development's (MBRD) and Dalcombank's (DCB) Long-term Issuer Default Ratings (IDRs) to Positive from Stable.

The agency said in a statement: "At the same time, it has affirmed the Long-term IDRs of both banks at 'B+' respectively. A full list of rating actions on both banks is provided at the end of this announcement.

"The Outlook revisions for MBRD and DCB follow a revision of the rating Outlook on Sistema Joint Stock Financial Corp. (Sistema; 'BB-') to Positive from Stable. Sistema is the majority shareholder of MBRD, which in turn is the sole owner of DCB. MBRD's and DCB's IDRs reflect Fitch's view of the strong propensity of Sistema to provide support to these banks in case of need. The future direction of the bank's ratings is likely to continue to depend on Sistema's Long-term IDR and Fitch's view of the parent's propensity to support the group's banks.

"MBRD's Individual rating of 'D/E' reflects the bank's deteriorated asset quality, weakened profitability, concentrated balance sheet, significant level of related-party business and frequent changes in management. Fitch also continues to express concern about the low transparency of the operations of MBRD's Luxemburg-based subsidiary, East-West United Bank (EWUB; which accounted for 42% of consolidated loans at end-H110), although management disclosure suggests that a majority of the subsidiary's loans are cash-backed.

"Fitch has been informed by the bank that the lack of transparency of EWUB's operations is due to local regulatory restrictions on disclosure of customer information. At end-H110, MBRD's reported level of loans overdue more than 90 days (NPLs) accounted for 9.7% of bank's stand-alone loan book, and an additional 22% of loans were restructured. Overdue loans in EWUB's portfolio were reportedly low.

"The capitalisation of the bank continues to be supported by the shareholder: in 2009, Sistema provided RUB1.8bn of new subordinated debt and bought out some of the bank's non-performing loans, resulting in an equity increase of RUB1.4bn. At end-H110, MBRD's consolidated Basel I tier 1 and total capital ratios were 9.5% and 14.6% respectively, although the tier 1 ratio would have been 14.2%, after allowing for Sistema's conversion in October 2010 of RUB5.2bn of subordinated loans into equity. In H111, Sistema plans to inject another RUB4bn of fresh equity into the bank, although the impact of this on capital ratios could be offset in light of the bank's ambitious growth plans.

"DCB's Individual Rating of 'E' reflects the bank's small size, weak and still deteriorating asset quality, weak capitalisation and concentrated balance sheet. At end-Q310 the bank's reported NPLs accounted for 14.3% of total loans, up from 12.7% at end-2009. Additionally 6.2% of loans were restructured. At end-Q310, the bank's Basel I tier 1 and total ratios were 7.5% and 12.6% respectively, which were moderate in view of its deteriorating asset quality. The regulatory CAR was just 11% at end-Q310, close to the minimum required 10%, indicating low loss absorption capacity. Fitch was informed that Sistema plans to support DCB's capital with RUB1bn of fresh equity in H111.

"MBRD is a medium-sized Russian bank, 96%-owned by Sistema. Servicing the business needs of Sistema remains an important part of MBRD's business. The bank is the parent of a banking group, which includes EWUB (MBRD has a 66% stake in EWUB) and DCB. On a stand-alone basis, MBRD was ranked the 25th largest bank by total assets at end-H110.

"The rating actions are as follows:

Moscow Bank for Reconstruction and Development (MBRD)

Long-term IDR: affirmed at 'B+'; Outlook changed to Positive from Stable

Short-term IDR: affirmed at 'B'

Support rating: affirmed at '4'

Individual rating: affirmed at 'D/E'

National Long-term rating: affirmed at 'A-( rus)'; Outlook changed to Positive from Stable

"Dalcombank (DCB)

Long-term IDR: affirmed at 'B+'; Outlook changed to Positive from Stable

Short-term IDR: affirmed at 'B'

Support rating: affirmed at '4'

Individual rating: affirmed at 'E'

National Long-term rating: affirmed at 'A-(rus)'; Outlook changed to Positive from Stable"