Moody's upgrades Sviaz-Bank (Russia) to B1/A1.ru from B2/Baa1.ru

August 26, 2010 - Moody's Investors Service

 

Moscow, August 26, 2010 -- Moody's Investors Service has today upgraded the local and foreign currency deposit ratings of Sviaz-Bank to B1 from B2. Its Bank Financial Strength Rating (BFRS) of E+ was affirmed but now maps to a Baseline Credit Assessment (BCA) of B2, up from the previously assigned B3. The deposit ratings carry a positive outlook while the outlook for the BFSR is stable. Concurrently, Moody's Interfax Rating Agency upgraded the bank's long-term National Scale Rating (NSR) to A1.ru from Baa1.ru. National scale ratings carry no specific outlook.

RATINGS RATIONALE

Moody's notes that the BCA uplift to B2 from B3 reflects the recovery of Sviaz-Bank's lending and deposit-taking franchise as well all as its track record of healthy financial performance in H1 2010 and strong capital adequacy levels. As per IFRS financial statements for Q1 2010 (reviewed by independent auditors), the bank recorded net income of
RUB847 million (US$29 million) driven by renewed lending in 2009 and stabilisation of loan book quality. In 2009 and Q1 2010 Sviaz-Bank issued
RUB43 billion of new loans representing over 47 % of its gross loan book as of 31 March 2010, and demonstrated 22% growth in the bank's deposit base for the same period. Thus the bank recovered its market franchise which was damaged in late 2008. Sviaz-Bank reported strong capital adequacy ratios (CAR) aided by recovery in recurring income generation as well as capital injections, with the Tier 1 CAR at 23.7% and Total CAR at 47.4%, which support the bank's potential losses absorption capacity.

Sviaz-Bank is almost fully owned by state-owned corporation Vnesheconombank (VEB, rated Baa1), which bailed out the bank in late
2008 and provided capital and liquidity support to restore the bank's operations. Recently, the parent announced its plan to launch the Post-Bank initiative in which Sviaz-Bank will be transformed into new institution named Post-Bank in partnership with state-owned corporation Post of Russia and with a private bank that will be selected by open tender.

Post-Bank will be focused on providing a wide range of financial services to corporate, SME and retail customers using the unrivalled countrywide distribution capacity of Post of Russia. Moody's views positively the steps that have already been taken as part of preparation for launching this initiative. The rating agency believes that the implementation of this initiative could lead to closer strategic fit of Sviaz-Bank to its parent, and thus is likely to result in a higher probability of support from VEB to Sviaz-Bank in case of need. Thus, the rating agency assigns a positive outlook to Sviaz-Bank's deposit rating of B1, which incorporates one-notch uplift from the bank's BCA of B2 on the back of Moody's current assessment of low probability of parental support. Successful completion or implementation of this initiative and a track record of financial performance in line with the parent's strategy would likely lead to a reassessment of the rating agency's support assumptions and, thus, an upgrade of the deposit rating.

Moody's previous rating action on Sviaz-Bank was on 25 September 2009 when the BFSR was upgraded to E+ from E, its long-term local currency and foreign currency bank deposit ratings were upgraded to B2 from Caa2, and its NSR was upgraded to Baa1.ru from B2.ru.

The principal methodologies used in rating Svaiz-Bank were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Based in Moscow, Russia, Sviaz-Bank reported total IFRS assets of RUB123 billion as at 31 March 2010 and net income of RUB847 million for Q1 2010.
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Cbonds page: Sviaz-Bank
Issuer profile:

Sviaz-Bank was established in 1991, and today it is an all-purpose lending and financial institution maintaining its presence in 51 members of the Russian Federation. The Bank’s regional network comprises its Head Office in Moscow, 51 branches, and 97 backup offices and mini-branches. State Corporation «Bank for Development and Foreign Economic Affairs (Vnesheconombank)», which is a state-controlled corporation, is Sviaz-Bank’s majority owner holding 99.47% of the Bank’s shares of stock. Sviaz-Bank’s key business areas are providing banking services to corporate entities and individuals, managing debt financing, and conducting international business such as trading in international financial markets, commercial and structural funding, and borrowing from international lenders. The Bank cooperates successfully with big, medium-size, and small business entities operating in all segments of the Russian economy. It gains great effect from its cooperation with post and communications organizations, including the Post of Russia Federal State Unitary Enterprise and the power industry, and also gives much attention to expanding banking services to individuals. The Bank considers lending to the real sector of the country’s economy, including small and medium-size businesses, to be among its priorities. Making banking services to the public a significant component of its development policy, Sviaz-Bank commits itself to high goals of winning significant positions in the market by vigorously developing retail banking, in particular, accepting funds in deposits, issuing mortgages and consumer credit facilities, and extending accessible banking services to large segments of the public. Sviaz-Bank is active in the capital market and trades on the Moscow Interbank Currency Exchange, or MICEX CJSC, the MICEX Stock Exchange, CJSC, the Russian Trading System Stock Exchange, OJSC, and the St. Petersburg Currency Exchange, CJSC. The Bank cooperates productively with major Russian and Western investment banks. The Bank’s network of correspondent banks has over 50 foreign and Russian financial institutions, including The Bank of New York (New York), VTB Bank (Deutschland) AG (Frankfurt), National Bank of Canada (Montreal), Sumitomo Mitsui Banking Corporation (Tokyo), Credit Suisse (Zurich), DnB NOR Bank ASA (Oslo), Swedbank AB (publ) (Stockholm), Sberbank of Russia (Moscow), Vnesheconombank (Moscow), VTB Bank (Moscow) etc. The Moody’s Investors Service Rating Agency confirmed Sviaz-Bank’s financial stability rating at E+, and raised its long-term rating of deposits in national and foreign currencies to B1 from its previous B2 rating. The Agency assesses “positively” its forecast for the Bank’s long-term rating of deposits in national and foreign currencies. The Moody’s Interfax Rating Agency also raised the Bank’s rating of deposits on the national scale by as much as three points to А1.ru from its previous Baa1.ru. The Agency reports that Sviaz-Bank’s ratings could be raised owing to the Bank’s positive financial performance in the first six months of 2010 and its high capital adequacy levels with financial support from Vnesheconombank, its shareholder. According to Interfax-CEA data for January 1, 2010, Sviaz-Bank was 23d among Russia’s 100 biggest banks for key financial performance figures. The Central Bank of the Russian Federation reports that Sviaz-Bank was among Russia’s 30 biggest banks. Sviaz-Bank’s Series 01 bonds (official registration number of the issue 40101470B of April 2, 2007) have been put on the Mortgage List of the Bank of Russia. Sviaz-Bank holds License No.1470 from the Bank of Russia and Certificate No.738 that puts the Bank on the list of member banks of the mandatory deposit insurance system./04,2011 The bank's network comprises 49 regional branches to enable successful cooperation with clients which also have extensive business networks. The bank is always working to expand its presence in the regions of Russia. The major shareholder of Sviaz-Bank is State Corporation «Bank for Development and Foreign Economic Affairs (Vnesheconombank)». Sviaz-Bank has traditionally been linked to the sector of telecommunications, as it was set up on the initiative of the Ministry for Communications of the USSR. At present the bank is developing as a universal interregional credit institution providing services that meet international standards. Sviaz-Bank sees its traditional participation in the telecommunications sector, one of the fastest growing sectors of the economy, as a positive. Sviaz-Bank is working hard on improving its corporate governance principles, it has also changed the means by which it offers corporate customer services - now each corporate client has their own personal manager. Sviaz-Bank has been upgrading its banking technologies and implementing an electronic document workflow management system. Since 2004, the bank has been arranging the issuance, placement, circulation and redemption of bond issues. Sviaz-Bank`s set of banking products for individual clients is being regularly updated. Thanks to its partnership with the Russian Post federal state unitary enterprise clients can access banking services not just at the bank's offices but also at post offices across Russia.

Outstanding issues:
5 issuesRUR25,000,000,000
Issuer rating:
Moody's Investors ServiceWithdrawn/LT Int. Scale (foreign curr)11/16/2011
Moody's Investors ServiceB1/PositiveLT Int. Scale (loc. curr.)08/26/2010
Standard & Poor'sBB/NegativeLT Int. Scale (foreign curr.)11/26/2013
Standard & Poor'sBB/NegativeLT Int. Scale (loc. curr.)11/26/2013
Standard & Poor'sruAA/LT National Scale (Russia)11/26/2013
Fitch RatingsBB/NegativeLT Int. Scale (foreign curr.)06/09/2014
Fitch RatingsAA-(rus)/StableNational Scale (Russia)06/09/2014
Fitch RatingsBB/NegativeLT Int.l Scale (local curr.)06/09/2014
Moody's Interfax Rating AgencyWithdrawn/National Scale (Russia)11/17/2011
National Rating AgencyAA-/National scale (Russia)07/01/2007