December 10, 2012 / 3:08 PM / 5 years ago

TEXT-Fitch affirms Credit Bank of Moscow 'BB-', stable outlook

Dec 10 - Fitch Ratings has affirmed Credit Bank of Moscow's (CBOM) Long-term
Issuer Default Rating (IDR) at 'BB-'. The Outlook is Stable. A full list of
rating actions is at the end of this comment.

RATING ACTION RATIONALE - IDRs, VR AND SENIOR UNSECURED DEBT RATING

The affirmation reflects minor changes in CBOM's risk profile since the last 
rating action in July 2012. The bank's main issues remain its capital quality in
view of certain risky related party exposures; continued rapid growth; and 
relatively high cost of funding. The growing share of wholesale liabilities may 
also result in higher refinancing risk. At the same time, the bank's strengths 
are its solid profitability, good liquidity position supported by the quick 
loans turnover, and broadening franchise.

RATING DRIVERS - IDRs, VR AND SENIOR UNSECIRED DEBT RATING

CBOM's RUB5.8bn equity injection by EBRD and IFC in August 2012 has already been
consumed by rapid growth (30% in 10M2012, unannualised), so capitalisation is 
now only moderate (regulatory ratio of 11.5% at end-Q312). It is also weakened 
by moderately reduced, but still considerable related party lending of varying 
quality (5% of end-Q312 loans or 27% of end-Q312 Fitch core capital (FCC)). 

To maintain planned 20% loan growth in 2013, CBOM plans to raise around USD150m 
of subordinated debt in Q412-H113 (2013 issues will among other regulatory 
requirements contain a conversion option to qualify as Tier II capital). These 
plans are flexible, however, and the bank also has the ability to reduce its 
risk-weighted assets and ease capital pressure in a potential stress situation. 

Asset quality is generally reasonable, as reflected by low NPL ratio of 1.2% at 
end-Q312 and quick loans turnover (around 60% of the book is less than one year 
in term), which to an extent mitigates the risk of portfolio seasoning. 
Additionally, Fitch has carried out a detailed review of CBOM's 50 largest loan 
exposures (around 50% of end-Q312 loans), which are mostly short-term working 
capital loans to local trading companies. These are performing, but most 
entities are relatively highly leveraged, which means they are exposed to risks 
of economic recession and refinancing risks.

Additionally, there is about RUB10bn of loans (27% of FCC), which Fitch 
considers to be related to CBOM's controlling shareholder. Of this RUB7.3bn (20%
of FCC) aggregate exposure to agricultural business and a weak machinery trading
company is considered risky by Fitch. Positively, the agricultural exposure has 
reduced by RUB1.8bn in December 2012 and the performance of machinery trading 
company has improved somewhat during 2012. 

As the bank has been funding rapid growth with rather expensive retail deposits 
(40% of end-Q312 liabilities), its funding costs are relatively high (7.1%) and 
may further increase reflecting the current market upward trend. As a result, 
CBOM's so far healthy 5.5% net interest margin and overall profitability (Q312 
annualised ROAE of 17%) may decrease. 

The active use of wholesale funding (27% of end-Q312 liabilities), if further 
increased will become of greater concern due to attached refinancing risks. 
Medium-term repayments are an already considerable RUB11.0bn in Q412 and 
RUB19.7bn in 2013. These figures conservatively include bonds with put options 
of RUB7.3bn and RUB13.7bn, respectively. 

Refinancing/liquidity risks are mitigated by the bank's significant RUB55bn 
liquidity buffer consisting of cash, short-term bank placements and securities 
eligible for refinancing with the Central Bank of Russia (around 80% of total 
securities at end-Q312). This covered roughly 30% of end-Q312 customer accounts 
or 1.8x Q412-2013 wholesale repayments. Fitch conservatively excluded from the 
above liquidity a RUB3bn (8% of FCC) placement in local investment company, 
which in the agency's view may be fiduciary and therefore restricted. 

RATING SENSITIVITIES - IDRs, VR AND SENIOR UNSECURED DEBT RATING

Upside potential for CBOM's ratings is unlikely in the near term unless loan 
growth moderates further, the amount of relationship based lending reduces and 
the funding costs decrease.

Downside pressure on the bank's ratings could arise if a considerable worsening 
of the operating environment leads to significant deposit outflows and/or 
potential asset quality deterioration materially beyond Fitch's current 
expectations. Increase of relationship-based lending and/or limited progress 
with timely redemption of existing relationship-based exposures would be also 
credit negative. Increased utilisation of wholesale funding leading to increased
refinancing risks may also exert negative pressure on the ratings.  

The rating actions are as follows:

Long-term foreign and local currency IDRs: affirmed at 'BB-', Outlook Stable

Short-term IDR: affirmed at 'B'

Viability Rating: affirmed at 'bb-'

Support Rating: affirmed at '5'

Support Rating Floor: affirmed at 'No Floor' 

National Long-term rating: affirmed at 'A+(rus)'; Outlook Stable

Senior unsecured debt: affirmed at 'BB-'; Outlook Stable


Additional information is available at www.fitchratings.com. The ratings above 
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been 
compensated for the provision of the ratings.

Applicable criteria, "Global Financial Institutions Rating Criteria", dated 15 
August 2012 are available at www.fitchratings.com.

Applicable Criteria and

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