27 Sep 2010 19:15

S&P affirms Bank Soyuz, outlook stable

MOSCOW. Sept 27 (Interfax) - Standard & Poor's Ratings Services said today that it had raised its Russia national scale rating on Bank Soyuz to 'ruBBB' from 'ruBBB-' and affirmed its 'B-' long-term and 'C' short-term counterparty credit ratings. The outlook is stable, the agency said in a press release.

"The raising of the Russia national scale rating reflects an improvement in the bank's financial profile, in particular its funding and capital, due to substantial ongoing funding and capital support from the Russian government's State Corporation Deposit Insurance Agency (DIA)," said Standard & Poor's credit analyst Victor Nikolskiy.

Bank Soyuz's creditworthiness is still, however, constrained by the bank's weak asset quality, uncertainties about future business development in a risky, volatile, and increasingly competitive operating environment, and still weak profitability.

Although the bank is no longer under temporary administration, it remains under financial recovery status and is managed by the DIA, a government agency that is responsible for depositor protection in Russia. The aim of the DIA is to manage the bank back to financial and operational health by 2014. Bank Soyuz is currently owned by the DIA (50.00000001%), and Ingosstrakh Insurance Co. (BBB-/Negative/--; Russia national scale 'ruAA+') (49.99999997%).

In July 2010, the DIA finalized the purchase of Russian ruble (RUB) 20 billion of investment assets from Bank Soyuz, covering the latter's problem loans. Although this eased the bank's asset quality problems, the status of the loan portfolio remains weak, with about 40% of loans in some form of delinquency as of July 7, 2010. These efforts to improve the bank's asset quality, together with substantial funding and capital injections, have led to a two-notch improvement in the bank's stand-alone credit profile (SACP). We believe that the DIA will continue to support the bank financially and thus consider this to be "ongoing" support. Accordingly, the counterparty ratings no longer incorporate any uplift above the bank's SACP.

S&P remains concerned about Bank Soyuz's future business development and business prospects. S&P considers the bank's ambition to double in size over the next three years to be a risky strategy, particularly given tough competition for creditworthy borrowers in Russia and the bank's need to strengthen its risk management procedures and controls. However S&P takes certain comfort from the fact that the DIA will continue to closely monitor the bank and be involved in its development for at least three years.

The bank's funding and liquidity have improved due mainly to ongoing and substantial support from the DIA (about 50% of total liabilities). In addition, the bank maintains a liquid asset cushion of about 30% of total assets and does not have any significant debt redemptions until 2014.

The stable outlook reflects S&P's expectation that the DIA will continue to provide funding support to Bank Soyuz.

The bank was Russia's 58th largest by assets, according to the Interfax-100 ranking at the end of H1 2010.