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Fitch Places RosCap's IDR of 'BB-' on RWN
May 30, 2017 / 3:52 PM / 6 months ago

Fitch Places RosCap's IDR of 'BB-' on RWN

(The following statement was released by the rating agency) MOSCOW, May 30 (Fitch) Fitch Ratings has placed Bank Rossiysky Capital's (RosCap) Long-Term Issuer Default Ratings (IDRs) of 'BB-' on Rating Watch Negative (RWN). A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, SUPPORT RATING, SUPPORT RATING FLOOR (SRF), SENIOR DEBT The placement of RosCap's Long-Term IDRs, Support and senior debt ratings on RWN reflects announced plans to transfer the bank from the current owner Depositary Insurance Agency (DIA), as a part of its reorganisation, to the Agency for Housing Mortgage Lending (AHML; BBB-/Stable) by end-2017. In Fitch's view, support for RosCap from AHML is currently uncertain, as the transaction seems to be a government directive, and AHML has yet to formulate a strategy incorporating RosCap in its operations, while the scope of future integration and synergy is not yet clear. In addition the ability of AHML to support RosCap on its own could be limited given that RosCap is comparable in size, while its credit profile is vulnerable notwithstanding the expected balance sheet clean-up/recapitalisation prior to transfer. Future support may ultimately flow from the broader Russian government, but propensity/flexibility is hard to ascertain at this stage. Fitch expects to resolve RWN once transfer to AHML is completed and there is more clarity about the latter's strategy with respect to RosCap, as well as support propensity for the bank from AHML/broader Russian authorities. Fitch has not assigned a Viability Rating (VR) to RosCap due to its previously limited stand-alone commercial operations and its increased involvement in DIA's policy role. Fitch will assess the scope for assigning the VR after the transfer and once there is more clarity about the bank's business model and integration, or a lack of thereof, within AHML. Prior to the transfer DIA will recapitalise the bank through the injection of new equity and conversion of preferred shares and debt and buy out certain assets at gross value. However, offsetting some of this new capital, in 2018 the bank will increase to RUB15 billion its net exposure to a defaulted construction company SU-155, which will likely need to be heavily reserved. Fitch estimates that post these transfers/recapitalisation the bank's net problem assets (including SU-155 exposure) will still be a sizable 0.6x of Fitch core capital (FCC), while FCC will be moderate at around 10% of risk-weighted assets (RWAs). Further, the bank's profitability is likely to remain weak due to high funding costs and opex, which coupled with residual problem/high-risk exposures suggest that future capital support may be needed even after the clean-up. The affirmation of the bank's Short-Term IDR at 'B' reflects Fitch's base case expectation that the bank's Long-Term IDRs are unlikely to be downgraded below the 'B' range. RATING SENSITIVITIES IDRS, SUPPORT RATING, SRF, SENIOR DEBT IDRs can be downgraded if Fitch views the bank's role as being of limited importance for AHML or if there is a lack of integration between them. IDRs may stabilise at 'BB-' if RosCap becomes firmly integrated into AHML's strategy/operations providing services core to the latter's mandate. Also the bank's IDRs could be downgraded prior to the transfer to AHML if (i) the Russian Federation is downgraded; (ii) if the propensity of DIA/authorities to provide support weakens. The rating actions are as follows: RosCap Long-Term Foreign and Local Currency IDRs: 'BB-'; placed on RWN Short-Term Foreign Currency IDR: affirmed at 'B' Support Rating: '3'; placed on RWN Support Rating Floor: 'BB-'; placed on RWN Senior unsecured debt: 'BB-'; placed on RWN Contact: Primary Analyst Anton Lopatin Director +7 495 956 7096 Fitch Ratings CIS Ltd 26 Valovaya Street, Moscow 115054 Secondary Analyst Artem Beketov Analyst +7 495 956 9932 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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