8 Sep 2009 14:45

S&P assigns Russia-based BNP Paribas 'BBB-/A-3', 'ruAAA' Ratings; negative outlook

MOSCOW. Sept 8 (Interfax) - Standard & Poor's Ratings Services has assigned its 'BBB-' long-term and 'A-3' short-term counterparty credit ratings to Russia-based BNP Paribas ZAO, the ratings agency said in a statement.

The outlook is negative. At the same time, a 'ruAAA' Russian national scale rating was assigned.

"The ratings reflect the bank's strategic importance for BNP Paribas (AA/Negative/A-1+) as well as tight integration and ongoing operational and financial support from the BNP Paribas group," said Standard & Poor's credit analyst Victor Nikolskiy.

These strengths are underpinned by the benefits the bank receives from the parent, including a strong franchise in corporate and investment banking, ongoing funding support, guarantees on a large proportion of its loan portfolio, senior personnel representation, and risk management, the statement says.

These strengths are offset by the bank's weak capitalization; high loan portfolio concentrations; relatively high market risk; and low business diversification, focused on the highly competitive and volatile wholesale banking business. BNP Paribas ZAO operates in what S&P considers to be a challenging operating environment in the Russian Federation (foreign currency BBB/Negative/A-3; local currency BBB+/Negative/A-2; Russia national scale 'ruAAA'). High industry risks exacerbate these weaknesses, S&P said.

The long-term rating on the bank incorporates a four-notch uplift from its stand-alone credit profile because of the agency's expectations of support from the BNP Paribas group. S&P considers BNP Paribas ZAO to be a strategically important subsidiary of BNP Paribas and believe it to be highly likely that the parent will provide support to the bank--on an ongoing basis and in a stressed scenario.

"The negative outlook reflects the pressures of Russia's currently adverse operating environment on the bank's business development; market-sensitive profitability; and asset quality, considering extremely high concentrations in the loan portfolio," Nikolskiy said.

S&P could lower the ratings on BNP Paribas ZAO if its financial performance, in particular its asset quality and related credit costs, deteriorate to the extent that they could not be absorbed by the current level of capitalization and could not be restored by capital injections or guarantees from the parent. S&P considers a weakening of the propensity of the parent to provide support to be unlikely. Nevertheless, such a scenario would pressure the ratings.

Ratings upside potential is very limited in the short term, at least until the turbulence in the banking sector eases, the bank's asset quality stabilizes, and its capitalization strengthens, the statement says.