(The following statement was released by the rating agency)
MOSCOW/LONDON, March 30 (Fitch) Fitch Ratings has revised the
Alfa-Bank (Alfa) and its Cyprus-based holding company ABH
(ABHFL) to Stable from Negative and affirmed Alfa's Long-Term
Rating (IDR) at 'BB+' and ABHFL's Long-Term IDR at 'BB'. A full
list of rating
actions is at the end of this comment.
KEY RATING DRIVERS
The revision of the Outlook on Alfa reflects the stabilisation
of the Russian
operating environment and, as a result, reduced pressure on the
quality and performance.
Alfa's ratings, which are the highest of a Russian
privately-owned bank, reflect
its well-developed franchise and access to top tier
sound management, improved asset quality, recovering
profitability and good
track record of managing through the cycle. The ratings also
take into account
risks relating to the Russian operating environment, significant
the bank's performance and moderate regulatory capitalisation.
Alfa's asset quality improved in 2016, with the ratio of
(NPLs; more than 90 days overdue) decreasing to 4.2% from 6.9%
at end-2015 as a
result of recoveries, collateral foreclosures and write-offs.
NPLs were fully
covered by impairment reserves, and restructured loans were
end-2016. Performance of retail loans (12% of total loans,
personal loans and credit cards) also improved, reflected in NPL
(calculated as the increase in NPLs plus write-offs to average
a good proxy for credit losses) decreasing to 7% in 2016 from
9.3% in 2015,
comfortably below the Fitch-calculated break-even level of about
Profitability improved in 2016, with the total comprehensive
income to average
equity ratio increasing to 14% in 2016 from zero in 2015 due to
a moderate 50bp
net interest margin improvement and a significant reduction in
charges (LICs) to 1.4% from 3.2% of average loans.
Capitalisation is adequate. The consolidated Fitch Core Capital
calculated at the ABHFL level, was 15.9% at end-2016, slightly
down from 16.7%
at end-2015. However, this and the bank's reported Basel I Tier
1 capital ratio
(16.2%) benefit significantly from the Basel I-based
calculation, which does not include charges for market risk and
risk. Adjusting for these, core capital ratios would have been
13%, Fitch calculates. Regulatory capitalisation at the bank
significantly tighter, with a core Tier 1 ratio of 8.1%
including buffers is 6.1%), Tier 1 was higher at 9.6% (7.6%),
due to USD700
million AT1 perpetual bonds placed in 2H16, and Total capital
15% (9.6%) at
Liquidity is ample. Liquid assets (cash and equivalents, net
interbank placements and bonds eligible for repo funding from
the Central Bank
of Russia) covered customer accounts by 53% at end-2016.
Wholesale debt maturing
in 2017 was USD1.6 billion at end-2016, equal to a moderate 14%
of the liquidity
cushion, and Alfa plans to refinance the majority of these
Given Alfa's broad franchise, in Fitch's view there is a
moderate probability of
support from the Russian authorities, as reflected in the '4'
Support Rating and
'B' Support Rating Floor. Alfa's owners have supported the bank
in the past, and
in Fitch's view, would have a strong propensity to do so again,
Their ability to provide support is also likely to be
significant, as they seem
to have little debt and significant cash reserves following past
However, Fitch does not formally factor shareholder support into
given the limited visibility of the shareholders' current
financial position and
Alfa's significant size.
The affirmation of ABHFL's ratings and Outlook revision reflects
that default risk at the bank and the holding company are likely
to be highly
correlated in view of the high degree of fungibility of capital
within the group, which is managed as a single entity. The
volume of holding company debt to non-related parties also
supports the close
alignment of its ratings with Alfa.
The one-notch difference between the bank and holding company
the absence of any regulation of the consolidated group, the
fact that the
holding company is incorporated in a different jurisdiction and
the high level
of double leverage at the holding company. The latter, defined
by Fitch as
equity investments in subsidiaries divided by holdco equity, was
end-2016. However, if all related party funding was converted
into equity, the
double leverage ratio would fall to around 114%, or even lower
if some equity
investments were restated at fair value.
ABHFL and Alfa's unsecured debt is rated in line with their
Alfa's 'BB' subordinated debt rating is notched down once from
the bank's VR,
which incorporates zero notches for incremental non-performance
risk and a notch
for higher loss severity.
Alfa's AT1 perpetual notes are rated 'B', four notches lower
than the bank's VR.
The notching comprises two notches for higher loss severity
relative to senior
unsecured creditors and a further two notches for
non-performance risk, as Alfa
has an option to cancel at its discretion the coupon payments.
The latter is
more likely if the capital ratios fall in the capital buffer
zone, although this
risk is somewhat mitigated by Alfa's stable financial profile
and policy of
maintaining reasonable headroom (about 150bps-200bps) over
Fitch will likely maintain a minimum one-notch difference
Long-Term IDR and Russia's sovereign rating. An upgrade of Alfa
likely require a sovereign upgrade, while a sovereign downgrade
lead to a downgrade of the bank's ratings. Alfa's ratings could
downgraded in case of a significant deterioration of asset
quality and erosion
of capital without the latter being replenished by shareholders.
ABHFL's ratings are likely to move in tandem with Alfa's. In
could be downgraded in case of a marked increase in double
significantly increased liquidity risks at the holdco level.
Debt ratings are sensitive to changes in Alfa's and ABHFL's
The rating actions are as follows:
Long-Term Foreign-Currency IDR: affirmed at 'BB+'; Outlook
revised to Stable
Long-Term Local-Currency IDR: affirmed at 'BB+'; Outlook revised
to Stable from
Short-Term Foreign-Currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'bb+'
Support Rating: affirmed at '4'
Support Rating Floor: affirmed at 'B
Senior unsecured debt: affirmed at 'BB+'
Subordinated debt: affirmed at 'BB'
Senior unsecured debt of Alfa Bond Issuance Public Limited
Company: affirmed at
Subordinated debt of Alfa Bond Issuance Public Limited Company:
affirmed at 'BB'
Perpetual subordinated debt of Alfa Bond Issuance Public Limited
affirmed at 'B'
ABH Financial Limited
Long-Term Foreign-Currency IDR: affirmed at 'BB'; Outlook
revised to Stable from
Short-Term Foreign-Currency IDR: affirmed at 'B'
Senior unsecured debt of Alfa Holding Issuance plc: affirmed at
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