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Fitch Rates Credit Bank of Moscow's Upcoming Perpetual AT1 Notes 'B-(EXP)'
April 19, 2017 / 10:11 AM / 8 months ago

Fitch Rates Credit Bank of Moscow's Upcoming Perpetual AT1 Notes 'B-(EXP)'

(The following statement was released by the rating agency) MOSCOW/LONDON, April 19 (Fitch) Fitch Ratings has assigned CBOM Finance PLC's upcoming issue of USD-denominated perpetual additional Tier 1 (AT1) notes an expected long-term rating of 'B-(EXP)'. The final rating is contingent upon the receipt of final documents conforming to information already received. CBOM Finance PLC, an Irish SPV issuing the bonds, will on-lend the proceeds to Russia's Credit Bank of Moscow (CBM), rated Long-Term Local and Foreign Currency Issuer Default Ratings (IDRs) 'BB'/Negative, Short-Term Foreign Currency IDR 'B', Viability Rating (VR) 'bb', Support Rating '5' and Support Rating Floor 'No Floor'. KEY RATING DRIVERS The planned notes should qualify as AT1 capital in regulatory accounts due to a full coupon omission option at CBM's discretion and full or partial write-down in case of either CBM's core equity Tier 1 (CET1) ratio falling below 5.125% (versus 4.5% regulatory minimum) or the Central Bank of Russia (CBR) approving a plan for the participation of the Deposit Insurance Agency (DIA) in bankruptcy prevention measures for the bank. Fitch believes the latter is possible as soon as a bank breaches any of its mandatory capital ratios or certain other liquidity and capital requirements. CBM's AT1 perpetual notes are rated four notches lower than the bank's 'bb' VR, the maximum rating under Fitch's Global Bank Criteria that can be assigned to deeply subordinated notes with fully discretionary coupon omission issued by banks with a VR anchor of 'bb'. The notching comprises: - Two notches for higher loss severity relative to senior unsecured creditors and relative to CBM's Tier-2 subordinated debt due to higher write-down trigger (5.125% for AT1 notes compared with 2% for Tier-2 subordinated debt), meaning that AT1 notes may start to absorb losses before CBM reaches the point of non-viability. - A further two notches for non-performance risk, as CBM has an option to cancel the coupon payments at its discretion. This is more likely if the capital ratios fall in the capital buffer zone, although this risk is somewhat mitigated by CBM's reasonable internal capital generation capacity and its general policy of maintaining some headroom (about 150bps) over minimum capital ratios. The notes will have no established redemption date. However, CBM will have an option to repay the notes after the first coupon reset date (in 2022) subject to CBR approval. CBM's regulatory Core Tier 1 and Tier 1 ratios were both 7.6% at end-2M17. The required statutory minimums for CBM, including a capital conservation buffer of 0.625%, currently equal, 5.75% and 7.25%, respectively. These minimum capital ratios will increase to 7.0% and 8.5% in 2019 once the capital conservation buffer is fully phased in. The countercyclical buffer also applies, but is currently 0%. CBM is not included in the list of domestically systemically important banks and does not need to maintain a systemic importance buffer, which is currently 0.35% and will increase to 1.00% in 2019. RATING SENSITIVITIES The issue rating could be upgraded if CBM's VR was upgraded (currently unlikely given the Negative Outlook). If the VR was downgraded to 'bb-', the notes could be affirmed, reducing the notching to three notches provided that the non-performance risk is sufficiently constrained. However, Fitch may widen the notching if non-performance risk increases, for example, if CBM fails to maintain reasonable headroom over the minimum capital adequacy ratios (including the buffers) or if the instrument becomes non-performing, i.e. if the bank cancels any coupon payment or at least partially writes off the principal. In that case the issue will be downgraded based on Fitch's expectations about the form and duration of non-performance. Contact: Primary Analyst Alexander Danilov Senior Director +7 495 956 2408 Fitch Ratings Moscow Valovaya Str, 26 Moscow Secondary Analyst Dmitri Vasiliev Director +7 495 956 5576 Committee Chairperson Olga Ignatieva Senior Director +7 495 956 6906 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. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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