Fitch upgrades individual ratings of 4 foreign-owned Russian banks
MOSCOW. Oct 27 (Interfax) - Fitch Ratings has upgraded the Individual ratings of four foreign-owned Russian banks: ZAO UniCredit Bank, ZAO Raiffeisenbank and ZAO Citibank to 'C/D' from 'D' and OJSC Nordea Bank to 'D' from 'D/E', the agency said in a press release.
The Individual rating upgrades reflect stabilisation of the banks' asset quality in an improved macroeconomic environment, and currently comfortable capital and liquidity positions at each of the institutions. The Individual rating of Absolut Bank has been affirmed at 'D/E'.
At the same time, Fitch has placed ZAO Citibank's 'BBB+' Long-term Issuer Default Rating (IDR) on Rating Watch Evolving (RWE) and maintained Absolut's 'BB+' Long-term IDR on RWE. The Long-term IDRs of ZAO UniCredit Bank, ZAO Raiffeisenbank and OJSC Nordea Bank have been affirmed at 'BBB+' with Positive Outlooks. All five banks' IDRs are driven by potential support from foreign shareholders.
Fitch has also assigned ZAO Raiffeisenbank's upcoming issues of fixed-rate RUB-denominated bonds (Series 01-10) expected ratings of Long-term 'BBB+' and National Long-term 'AAA(rus)'. The three-year bonds have been registered in 10 series, with issue sizes of RUB10bn, RUB7bn or RUB5bn. The final rating is contingent on the receipt of final documents conforming to information already received. A full list of rating actions is provided at the end of this commentary.
ZAO UniCredit Bank and ZAO Raiffeisenbank have achieved reasonable performance during 2009-H110, and capital positions have been supported by internal capital generation and loan book contraction. Although deterioration in asset quality has been significant, along with the sector, loan impairment for the two banks is somewhat below peers and the banks have remained profitable, notwithstanding increased provisioning requirements. At end-H110, ZAO Unicredit reported NPLs (loans overdue by more than 90 days) of 7% and a Basel II tier 1 ratio of 11.8%. At end-2009, ZAO Raiffeisenbank reported NPLs of 8.2% and a Basel II tier 1 ratio of 17% and there were no significant changes in these parameters at end H110. Liquidity positions are comfortable, customer deposits have been stable and the dependence on parent institutions for funding is quite moderate, and at ZAO Raiffeisenbank reducing.
ZAO UniCredit Bank is 100%-owned by UniCredit S.p.A. ('A'/Negative) through its Vienna-based subsidiary UniCredit Bank Austria AG (UBA; 'A'/Stable). ZAO Raiffeisenbank is almost 100% directly and indirectly owned by Raiffeisen Bank International AG (RBI, 'A'/Stable).
ZAO Citibank's regulatory capital ratio improved to a strong 24.5% at end-Q310 from 19% at end-2008, reflecting continued strong profitability. NPLs were a moderate 4.8% of gross loans at end-Q310. The bank continues to be locally funded by customer deposits, which accounted for 94% of liabilities at end-Q310 statutory accounts. At the same time, balance sheet liquidity remains high with liquid assets (up to 30 days) covering about 72% of customer deposits at end-Q310.
The RWE on ZAO Citibank's Long-term IDR reflects the potential for the rating to be both downgraded and upgraded in the near-term. The rating could be upgraded if Russia's 'BBB+' Country Ceiling is upgraded, together with the sovereign 'BBB' Long-term IDRs, which are currently on Positive Outlook. The rating could be downgraded if Citigroup Inc's 'A+' Long-term IDR is downgraded to 'BBB+', which corresponds to Fitch's current assessment of Citigroup's stand-alone financial strength. Citigroup's Long-term IDR was placed on Rating Watch Negative on 22 October 2010 (See 'Fitch: U.S. FI Ratings Potentially Impacted by Proposed FDIC Rules ' for further details). ZAO Citibank is 100%-owned by Citigroup.
OJSC Nordea Bank's asset quality remained sound at end-H110, with NPLs a low 1.4%, while the Basel I tier 1 capital ratio was reported at a comfortable 21.2%. The bank's concentrated credit risk exposure is reduced by guarantees from its 100% owner, Nordea Bank AB, on 70% of the top 20 borrowers, and a majority of the loan book has been approved at the parent level. Dependence on parent funding is high.
Absolut's Long-term IDR reflects potential support from its 95% shareholder, Belgian KBC Bank (KBCB, rated 'A'/Stable), while the RWE reflects KBCB's intention to divest the bank. According to the restructuring plan approved by European Commission, KBCB is to sell Absolut by 2012, although that deadline may be postponed by up to three years if reasonable purchase offers are not received. Although KBCB has informed Fitch that it is not currently in negotiations with any specific potential buyer, the possibility remains that an investor may emerge in the short-term, which would trigger a reassessment of Absolut's ratings.
The Individual Rating reflects substantial pressure on Absolut's asset quality, with NPLs at about 16% at end-H110 and a substantial 20% of the loan book restructured/rolled-over. Absolut expects a net loss for 2010 as a result of high credit costs, while the bank remains profitable on a pre-impairment level. The Basel I tier 1 ratio was 13.1% at end-H110, but will decrease if the bank reports losses in H210 as forecasted. At the same time, Fitch notes Absolut's solid liquidity position, supported by a contracting loan book, retail deposit growth and substantial parent funding (the latter equal to 54% of Absolut's liabilities at end-H110).
The rating actions are as follows:
ZAO Raiffeisenbank
Long-term foreign currency IDR: affirmed at 'BBB+'; Outlook Positive
Long-term local currency IDR: assigned at 'BBB+'; Outlook Positive
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Senior unsecured debt: affirmed at 'BBB+'/F2 and at 'AAA(rus)'
Senior unsecured upcoming RUB-denominated bonds: assigned Long-term 'BBB+ (exp)' and National Long-term 'AAA(rus)(exp)'
Individual Rating: upgraded to 'C/D' from 'D'
ZAO Unicredit Bank
Long-term foreign and local currency IDRs: affirmed at 'BBB+'; Outlook Positive
Short-term foreign and local currency IDRs: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Individual Rating: upgraded to 'C/D' from 'D'
ZAO Citibank
Long-term foreign currency IDR 'BBB+' placed on RWE
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Individual Rating: upgraded to 'C/D' from 'D'
OJSC Nordea Bank
Long-term foreign currency IDR: affirmed at 'BBB+'; Outlook Positive
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Individual Rating: upgraded to 'D' from 'D/E'
Absolut Bank
Long-term foreign currency IDR 'BB+'; RWE maintained
Short-term foreign currency IDR: affirmed at 'B'
National Long-term rating 'AA(rus)'; RWE maintained
Support Rating '3'; RWE maintained