Fitch affirms six Russian banks
MOSCOW. Nov 6 (Interfax) - Fitch Ratings has affirmed the Long-term Issuer Default Ratings of six Russian banks: OJSC Alfa Bank (Alfa) at 'BB-', MDM Bank at 'BB-', NOMOS-BANK (Nomos) at 'B+', Promsvyazbank (PSB) at 'B+', Bank Uralsib at 'B+' and Bank Zenit at 'B+', the agency said in a press release.
At the same time the agency has changed the Outlook to Stable from Negative on Alfa, MDM and Nomos, while retaining Negative Outlooks on PSB, Uralsib and Zenit. A full list of rating actions is provided at the end of this commentary.
The Stable Outlooks on Alfa, MDM and Nomos reflect these banks' solid loss absorption capacity, partly due to new capital injections (Alfa, Nomos) and greater transparency regarding shareholders' ability to provide more new capital, if required (particularly at MDM). The Stable Outlooks also reflect the overall recent stabilisation in the Russian operating environment, which makes further substantial deterioration in these banks' asset quality less likely, in Fitch's view.
The Negative Outlooks on PSB, Uralsib and Zenit reflect these banks' more moderate ability to absorb losses; greater uncertainty regarding shareholders' ability or willingness to provide new capital, if required; and certain aspects of the banks' risk profiles, including a very high pre-crisis growth rate at PSB, significant related party lending at Uralsib, and relatively high exposure to the construction and real estate sector at Zenit. At the same time Fitch views the downside risk for these banks as also having reduced in recent months due to the less negative economic backdrop, and further stabilisation of macroeconomic indicators and individual bank asset quality trends could lead to further Outlooks being revised back to Stable in 2010.
Although most of the aforementioned banks reported aggregate non-performing and restructured (prolongated) loans of around 30% at end-Q309, largely in line with Fitch's earlier sector-wide projections (25% base case; 40% pessimistic case), the agency notes that most impairment occurred in H109 with only moderate additional deterioration seen in Q309. The fact that most restructured loans are performing, in part due to the less negative economic backdrop, and usually enjoy improved collateral coverage, should also help to limit banks' ultimate losses. In addition, some problematic loans to larger, strategically important companies have benefited from refinancing from state-owned banks or direct government assistance to borrowers.
Alfa's non-performing loans (more than 90 days overdue) rose to 16.9% at end-Q309 from 1.1% at 1 January 2009 and prolongated loans were 9.8%, however, most of this increase occurred in H109 and should also be considered in the context of a 20% loan book contraction in H109. Fitch also acknowledges Alfa's expertise in negotiating and managing work-outs of problem assets, which should help to limit ultimate loan losses. Capitalisation has been bolstered by USD320m of equity from shareholders and USD1.3bn of subordinated debt from Vnesheconombank (VEB) in 2009, and Fitch estimates that, based on end-Q309 local accounts adjusted for the recent VEB sub debt contribution, the bank could have sustained a reserves/loans ratio of about 30% before breaching minimal capital requirements.
MDM's NPLs (more than 90 days overdue or more than 50% provided for) grew rapidly to 14.2% at end-H109 from 4.9% at end-2008, but this growth moderated in Q309. Management expects NPLs to be in the region of 15-17% by end-2009. Restructured loans were around 14% of the loan book at end-Q309, and some of these may also become impaired in the future. Nevertheless, MDM's solid capital cushion (end-Q309: 16.6% regulatory capital ratio) means it has the capacity to increase its reserves/loans ratio to 24% from the current 14% level. Fitch also notes MDM's relatively high quality of capital (mostly Tier 1) and thus significant unutilised Tier 2 capacity, and takes additional comfort from shareholder commitments to provide up to USD500m of additional capital if needed.
Nomos' asset quality remains broadly in line with its peer group: at end-Q309, loans 90 days overdue stood at 6.4% of gross loans, while 25.7% of loans had been restructured. The bank's loss absorption capacity has strengthened (at end-Q309 it could potentially withstand up to 22% of loan losses) after three subordinated debt contributions from shareholders and VEB during Q408-H109 at a total amount of approximately RUB17.7bn. Nomos has applied for an additional subordinated loan from VEB, however the approval of this is uncertain, in Fitch's view, given the reported depletion of funds at VEB.
PSB's NPLs (which mostly comprise loans more than 90 days overdue) stood at 8.7% of gross loans at end-H109 (2.8% at end-2008), while restructured loans were above the average for peer banks. Fitch views current capitalization levels as thin: the regulatory capital adequacy ratio (CAR) was 10.7% end-Q309, only just above the minimum 10% level, providing capacity to increase the reserves/loans ratio to 11.5% from the actual 10.5%. The Basel Total capital ratio was higher at 14% at end-H109, albeit also offering limited headroom due to the 12% level covenanted in some foreign borrowings. A new equity injection, expected to be received in Q409 from the EBRD and Commerzbank, should result in an approximately 1.1% increase in the total capital ratio, meaning that further support for the capital position may yet be required should any further material deterioration in asset quality take place.
Zenit's reported level of NPLs (defined as loans provisioned for more than 20%) stood at a relatively moderate 5.7% at end-H109, while loans 90 days overdue comprised 3.9% (unconsolidated) at the same date. At the same time, construction and real estate lending comprises a substantial 26% of the consolidated book and many of these exposures are long-term with bullet repayments of principal. Although interest is currently being paid on most of these loans, the timely repayment of principal to a significant extent relies on the future performance of the construction sector. The bank has strengthened its regulatory capital position as a result of subordinated debt received from its shareholder, the oil company OAO Tatneft, 'BB'/Stable) in Q109 and VEB in July 2009, in each case in the amount of RUB2.1bn. As a result, the regulatory CAR at end-Q309 improved to 14.8% unconsolidated (16.3% for the consolidated banking group), creating capacity to increase the reserves/loans ratio to 15.1% from the actual 5.8%.
Uralsib's NPLs (defined as retail loans 90 days overdue and corporate loans with over 50% impairment) reached 6.3% at end-H109 (end-2008: 3.6%), while the level of prolongated loans was higher than average for the peer group. The bank also has relatively high exposure to related parties, standing at more than 1.1x core capital at end-H109. The regulatory CAR improved to 15.3% at end-Q309, supported by a RUB6.2bn equity injection (mostly in the form of the bank's head office building) from the majority shareholder in Q209; this created capacity at end-Q309 to increase the reserves/loans ratio to 17.9% from the actual 13.2%. Fitch was informed that a significant part of the related party exposure could be repaid in the near-term, and that this might also be accompanied by a capital increase for the bank, which would be positive for Uralsib's risk profile.
The rating actions are as follows:
MDM Bank (OJSC)
Long-term IDR: affirmed at 'BB-' (BB minus); Outlook changed to Stable from Negative
Senior unsecured debt: affirmed at 'BB-' (BB minus)
Subordinated debt: affirmed at 'B+'
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
National Long-term Rating: affirmed at 'A+(rus)'; Outlook changed to Stable from Negative
OJSC Alfa-Bank
Long-term IDR: affirmed at 'BB-' (BB minus); Outlook changed to Stable from Negative
Senior unsecured debt: affirmed at 'BB-' (BB minus)
Subordinated debt: affirmed at 'B+'
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
National Long-term Rating: affirmed at 'A+(rus)'; Outlook changed to Stable from Negative
NOMOS-BANK
Long-term IDR: affirmed at 'B+'; Outlook changed to Stable from Negative
Senior unsecured debt: affirmed at 'B+'; Recovery Rating at 'RR4'
Subordinated debt: affirmed at 'B-' (B minus); Recovery Rating at 'RR6'
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'B-' (B minus)
National Long-term Rating: affirmed at 'A(rus)'; Outlook changed to Stable from Negative
Promsvyazbank
Long-term IDR: affirmed at 'B+'; Outlook Negative
Senior unsecured debt: affirmed at 'B+'; Recovery Rating at 'RR4'
Subordinated debt: affirmed at 'B-' (B minus); Recovery Rating at 'RR6'
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
Bank Uralsib
Long-term IDR: affirmed at 'B+'; Outlook Negative
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B'
Bank Zenit
Long-term IDR: affirmed at 'B+'; Outlook Negative
Short-term IDR: affirmed at 'B'
Individual Rating: affirmed at 'D'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
National Long-term Rating: affirmed at 'A-(A minus)(rus)'; Outlook Negative