(The following statement was released by the rating agency)
Dec 10 - Fitch Ratings has maintained Evrofinance Mosnarbank’s (EMB) ratings, including its Long-term Issuer Default Ratings (IDRs) of ‘B+’ on Rating Watch Positive (RWP). A full list of rating actions is at the end of this commentary.
RATING ACTION RATIONALE AND DRIVERS: LONG-TERM IDRs, NATIONAL LONG TERM RATING, SUPPORT RATING AND SUPPORT RATING FLOOR
The RWP on EMB’s ratings continues to reflect the bank’s planned transformation into an international financial institution (IFI). EMB’s transformation into an IFI, with the Russian Federation (‘BBB’/Stable) as a direct majority shareholder, as envisaged by an intergovernmental agreement signed by Russia and Venezuela (‘B+'/Stable) in December 2011, would create upward potential for the bank’s ratings.
In accordance with the agreement, Russia would acquire a 50% + 2 shares stake in EMB from two Russian state-controlled banks, and Venezuela would acquire a 50% - 2 shares stake from the National Development Fund of Venezuela.
RATING SENSITIVITIES: LONG-TERM IDRs, NATIONAL LONG TERM RATING, SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch expects to resolve the RWP upon completion of EMB’s transformation, which will follow ratification by national parliaments of the intergovernmental agreement. Following the change in status, Fitch will likely upgrade EMB’s Long-term IDRs to the ‘BB’ category.
The level of the ratings will depend, amongst other things, on the ratings of the two main shareholders, Fitch’s assessment of the importance of the bank’s policy role in servicing joint Russian-Venezuelan projects, and the extent of the shareholders’ capital commitments to the bank.
In Fitch’s view, given the slow progress to date with ratification of the agreement, it is possible that the change in the bank’s status may not take place in the near term.
The affirmation of EMB’s ‘b+’ Viability Rating (VR) reflects the bank’s strong capitalisation, comfortable liquidity and satisfactory asset quality. The loan book’s risk profile has become less conservative, but is still reasonable given the bank’s robust loss absorption capacity.
The VR also acknowledges EMB’s limited and concentrated franchise, and its currently moderate profitability. Single-name concentrations on both sides of the balance sheet are high: at end-10M12, the 20 largest exposures accounted for 92% of the loan book or 90% of Fitch Core Capital, and the three largest customers provided around 70% of total non-equity funding. EMB’s balance sheet total has experienced notable fluctuations throughout the year, a reflection of the bank’s settlement operations. However, fee income from servicing of joint Russian-Venezuelan projects has yet to become a large contributor to the bank’s revenues.
Upside potential for the VR is limited given the bank’s narrow franchise and moderate performance. Downward pressure on the VR could arise if leverage increases sharply and asset quality deteriorates, although this is not currently anticipated by Fitch. The VR is likely to be withdrawn following the bank’s transition into a supranational institution.
EMB is a mid-sized Russian bank, currently focused primarily on Russian corporate business. JSC VTB Bank (‘BBB’/Stable) and Gazprombank (unrated) currently each hold a 25% plus 1 share stake.
The rating actions are as follows:
Long-term foreign currency IDR: ‘B+'; maintained on RWP
Long-term local currency IDR: ‘B+'; maintained on RWP
Short-term foreign currency IDR: affirmed at ‘B’
National Long-Term Rating: ‘A-(rus)'; maintained on RWP
Viability Rating: affirmed at ‘b+’
Support Rating: ‘5’, maintained on RWP
Support Rating Floor: ‘No Floor’, maintained on RWP