24 Nov 2009 10:15

Fitch affirms Ak Bars bank, outlook stable

MOSCOW. Nov 24 (Interfax) - Fitch Ratings has affirmed AK BARS Bank's Long-term Issuer

Default rating (LT IDR) at 'BB' with Stable Outlook, the agency said in a press release.

The affirmation of the ratings follows the recent RUB9bn capital injection by entities controlled by the government of the Republic of Tatarstan (RT, 'BBB-'/Outlook Stable) and an increase in non-equity funding from government-related entities, demonstrating both capital and liquidity support from the republic. In Fitch's opinion, RT has a strong propensity to support Ak Bars in light of the government's control of the bank, the longstanding close relationship between the government and Ak Bars, the servicing by Ak Bars of RT accounts, the bank's extensive retail franchise in the republic (1.4 million individual depositors) and its overall importance to RT's banking system (41% of assets at end-Q309).

Support may also be forthcoming indirectly, from government-related enterprises.

At the same time, RT's ability to provide support may be constrained by the relative size of the local budget (the annual budget is equal to about half of the balance sheet of the bank) and RT's limited liquidity relative to the size of the bank, while existing budgetary procedures may impact the timeliness of support. Fitch also notes relatively loose corporate governance, which is reflected in the bank's directed and related-party lending. Indirect ownership through affiliated entities complicates a full assessment of the relationship between the RT government and Ak Bars, which could be a significant risk factor in case of changes in the republic's top leadership. The ability of local corporates and government-related entities to provide timely support to the bank may also be constrained (their ratings are either in line with or lower than Ak Bars). As a result, Fitch maintains a two-notch differential between the LT rating of RT and Ak Bars.

Future movements in Ak Bars' Long-term IDR are likely to be driven by changes of RT's Long-term IDR or changes in Fitch's view on the RT's propensity or ability to provide support.

The Individual Rating reflects deteriorated asset quality, relatively high exposure to the local construction/development sector and relatively tight liquidity. At end-H109, loans that are more than 90 days overdue accounted for 3.2% of gross lending; and reported loans with extended maturities represented another 7% (impaired loans under IFRS accounted for 6.7%). Reported exposure to the construction sector was a significant 13.4% at end-2008, and the bank finances sizable development projects in the republic as the largest creditor.

Highly liquid assets, including cash, net interbank placements and unpledged securities that are eligible for refinancing with the CBR, amounted to a moderate 12% of customer balances at end-October 2009. However, an unsecured funding line from the CBR is currently unutilised.

The Individual Rating also factors in Ak Bars' large franchise in the republic, strengthened loss absorption capacity after the capital increase (the bank could accumulate impairment reserves equal to 15% of end-Q309 loans without breaching minimum capital requirements) and moderate wholesale refinancing risk: foreign and local bonds represented 9.1% and 4.3% of liabilities, respectively, at end-H109.

The rating actions are as follows:

Long-term IDR: affirmed at 'BB'; Outlook Stable

Short-term IDR: affirmed at 'B'

Individual Rating: affirmed at 'D/E'

Support Rating: affirmed at '3'

National Long-term Rating: affirmed at 'AA-(rus)'; Outlook Stable.

The bank was Russia's 16th largest by assets, according to the Interfax-100 ranking at the end of the third quarter of 2009.