July 16, 2012 / 2:03 PM / 5 years ago

TEXT-Fitch affirms 3 foreign-owned Russian banks

(The following statement was released by the rating agency)
    July 16 - Fitch Ratings has affirmed three foreign-owned Russian banks'
Long-term Issuer Default Ratings at 'BBB+'. The Outlook on ZAO Raiffeisenbank
and ZAO Citibank is Stable and the Outlook on ZAO UniCredit Bank is Negative. At
the same time, the agency has upgraded the three banks' Viability Ratings (VR)
to 'bbb-' from 'bb+'. A full rating breakdown is at the end of this comment. 

The three banks' IDRs are driven by potential support from foreign shareholders.
ZAO UniCredit Bank is 100%-owned by UniCredit S.p.A. (UC; 'A-'/Negative) through
its Vienna-based subsidiary UniCredit Bank Austria AG (UBA; 'A'/Stable). ZAO 
Raiffeisenbank is a 100%-subsidiary of Raiffeisen Bank International AG (RBI, 
'A'/Stable). ZAO Citibank is fully-owned by Citigroup Inc. ('A'/Stable). 

The Negative Outlook on ZAO UniCredit Bank's Long-term IDRs reflects the Outlook
on UC's Long-term IDR. If UC is downgraded, UCB's Long-term IDR would also be 
downgraded. A downgrade of Russia's Country Ceiling ('BBB+') would also cause a 
downgrade of UCB's Long-term IDR.

The Long-term IDRs of ZAO Raiffeisenbank and ZAO Citibank are currently 
constrained by Russia's Country Ceiling and could be upgraded or downgraded if a
change in Russia's sovereign ratings resulted in a change in the Country 
Ceiling. A two-notch downgrade of either RBI or Citigroup could also drive a 
downgrade of their Russian subsidiaries, although this is not currently 
anticipated given the Stable Outlooks on the parents' ratings.

The upgrades of the three banks' VRs reflect Fitch's re-assessment of the banks'
underlying credit strengths and also factor in the recent positive track record 
of the banks' performance through the crisis. The banks have demonstrated 
sustainable profitability through the cycle, supported by their well-established
client franchises; moderate credit costs resulting from access to better quality
customers and sound risk management; generally stable funding bases, resulting 
in lower-than-peers funding costs; and good cost controls. 

Asset quality has stabilised, while loan impairment in the crisis for the three 
banks was somewhat below peers. Capital positions were supported by internal 
capital generation, which remains strong. At end-Q112, ZAO Unicredit Bank 
reported NPLs (loans overdue by more than 90 days) of 3.7% and a Basel II Tier 1
ratio of 10.9%. At end-2011, ZAO Raiffeisenbank reported NPLs of 4.6% and a 
Basel II Tier 1 ratio of 15.2% and there were no significant changes in these 
parameters at end-Q112. ZAO Citibank maintained exceptionally good loan quality 
(with corporate NPLs below 1% at end-Q112 and less than 1% NPLs generation in 
retail), and the regulatory capital ratio is expected to be sound at above 15% 
even after a planned USD150 dividend payment and potential further income 
distributions.  

Liquidity positions are comfortable, underpinned by customer deposit inflows. 
ZAO UniCredit Bank and ZAO Raiffeisenbank are currently net lenders to their 
parent institutions, reflecting both excess liquidity from short-term deposits 
and management of  risk-weighted assets  at the parent level. ZAO Citibank's 
liquidity is supported by a very low loans/deposits ratio and large holdings of 
sovereign debt (nearly 40% of the total assets), eligible for refinancing 
operations with the Central Bank of Russia.

At the same time, the VRs also consider expected cyclicality in the performance 
of the Russian economy and therefore the banks, modest market shares in a sector
dominated by state-owned banks, and significant foreign currency lending. The 
VRs also reflect relatively high loan concentrations by individual borrower at 
ZAO Raiffeisenbank and ZAO UniCredit Bank, significant exposure to the real 
estate segment at ZAO Raiffeisenbank, high depositor concentrations at ZAO 
UniCredit Bank, and ZAO Citibank's more limited franchise.

Further upside potential for the VRs is limited given the current level of 
Russia's sovereign ratings ('BBB'/Stable) and the banks' moderate market shares 
and likely cyclical performance. The VRs could come under downward pressure if 
there was an unexpected sharp deterioration in asset quality, or if an increase 
in problems at any of the parent banks resulted in markedly higher subsidiary 
funding costs, undermining their current business models.

The rating actions are as follows:

ZAO Raiffeisenbank
Long-term foreign and local currency IDRs: affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Senior unsecured debt: affirmed at 'BBB+'/F2 and at 'AAA(rus)'
Senior unsecured upcoming RUB-denominated bonds: affirmed at Long-term 'BBB+ 
(exp)' and National Long-term 'AAA(rus)(exp)' 
Viability Rating: upgraded to 'bbb-' from 'bb+'

ZAO UniCredit Bank
Long-term foreign and local currency IDRs: affirmed at 'BBB+'; Outlook Negative
Short-term foreign and local currency IDRs: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Viability Rating: upgraded to 'bbb-' from 'bb+'

ZAO Citibank
Long-term foreign currency IDR: affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Viability Rating: upgraded to 'bbb-' from 'bb+'

 (Caryn Trokie, New York Ratings Unit)

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