26 Aug 2010 17:21

Moody's upgrades Sviaz-Bank

MOSCOW. Aug 26 (Interfax) - Moody's Investors Service has upgraded the local and foreign currency deposit ratings of Sviaz-Bank to B1 from B2, the agency said in a press release.

Its Bank Financial Strength Rating (BFRS) of E+ was affirmed but now maps to a Baseline Credit Assessment (BCA) of B2, up from the previously assigned B3. The deposit ratings carry a positive outlook while the outlook for the BFSR is stable. Concurrently, Moody's Interfax Rating Agency upgraded the bank's long-term National Scale Rating (NSR) to A1.ru from Baa1.ru. National scale ratings carry no specific outlook.

Moody's notes that the BCA uplift to B2 from B3 reflects the recovery of Sviaz-Bank's lending and deposit-taking franchise as well all as its track record of healthy financial performance in H1 2010 and strong capital adequacy levels. As per IFRS financial statements for Q1 2010 (reviewed by independent auditors), the bank recorded net income of RUB847 million (US$29 million) driven by renewed lending in 2009 and stabilisation of loan book quality. In 2009 and Q1 2010 Sviaz-Bank issued RUB43 billion of new loans representing over 47 % of its gross loan book as of 31 March 2010, and demonstrated 22% growth in the bank's deposit base for the same period. Thus the bank recovered its market franchise which was damaged in late 2008. Sviaz-Bank reported strong capital adequacy ratios (CAR) aided by recovery in recurring income generation as well as capital injections, with the Tier 1 CAR at 23.7% and Total CAR at 47.4%, which support the bank's potential losses absorption capacity.

Sviaz-Bank is almost fully owned by state-owned corporation Vnesheconombank (VEB, rated Baa1), which bailed out the bank in late 2008 and provided capital and liquidity support to restore the bank's operations. Recently, the parent announced its plan to launch the Post-Bank initiative in which Sviaz-Bank will be transformed into new institution named Post-Bank in partnership with state-owned corporation Post of Russia and with a private bank that will be selected by open tender.

Post-Bank will be focused on providing a wide range of financial services to corporate, SME and retail customers using the unrivalled countrywide distribution capacity of Post of Russia. Moody's views positively the steps that have already been taken as part of preparation for launching this initiative. The rating agency believes that the implementation of this initiative could lead to closer strategic fit of Sviaz-Bank to its parent, and thus is likely to result in a higher probability of support from VEB to Sviaz-Bank in case of need. Thus, the rating agency assigns a positive outlook to Sviaz-Bank's deposit rating of B1, which incorporates one-notch uplift from the bank's BCA of B2 on the back of Moody's current assessment of low probability of parental support. Successful completion or implementation of this initiative and a track record of financial performance in line with the parent's strategy would likely lead to a reassessment of the rating agency's support assumptions and, thus, an upgrade of the deposit rating.

Moody's previous rating action on Sviaz-Bank was on 25 September 2009 when the BFSR was upgraded to E+ from E, its long-term local currency and foreign currency bank deposit ratings were upgraded to B2 from Caa2, and its NSR was upgraded to Baa1.ru from B2.ru.

Based in Moscow, Russia, Sviaz-Bank reported total IFRS assets of RUB123 billion as at 31 March 2010 and net income of RUB847 million for Q1 2010, Moody's said.