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Moody's affirms E/Caa1/Ba3.ru ratings of National Bank Trust (Russia); negative outlook

November 01, 2010 | Moody's Investors Service

Moscow, November 01, 2010 -- Moody's Investors Service has today affirmed
the E bank financial strength rating ("BFSR") and the Caa1/Not Prime
long-term and short-term local and foreign currency deposit ratings of
National Bank Trust (NBT). The outlook on all of the long-term global
scale ratings is negative. Concurrently, Moody's Interfax Rating Agency
(which is majority owned by Moody's) has affirmed NBT's long-term
National Scale Rating (NSR) of Ba3.ru. The NSR carries no specific
outlook.

Moody's assessment is primarily based on NBT's audited financial
statements for 2009 prepared under IFRS, signed on 23 June 2010, as well
as the bank's unaudited financial statements for H1 2010 prepared under
IFRS.

RATINGS RATIONALE

According to Moody's, the ratings and a negative outlook continue to
reflect NBT's weak financial fundamentals and significant probability of
their further deterioration as a result of: (i) continuing decline in
capitalisation as a result of the bank's loss-making performance and
operations with shareholders; (ii) significant pressure on asset quality
and (iii) vulnerable liquidity.

Moody's notes that NBT has been operationally loss making, with income
from stable sources (net interest income and fee and commission) failing
to cover administrative expenses. Moody's notes that such performance in
2009 was due to significant reduction in lending, and in 2010 was due to
the growth in administrative expenses as a result of investments in
business expansion. The rating agency does not expect operational
profitability to reach break-even in the medium term, therefore the
bank's capital will remain under pressure. In addition, aggressive
lending to the mass retail segment, where NBT lacks appropriate
experience, is expected to put further pressure on bottom-line
profitability and consequently on the capital base. Moody's also notes
that in 2009 the bank recorded direct losses to equity amounting to
RUB944 million (7% of equity) via transactions with shareholders in
addition to the profit and loss statement. Moody's comments that any
additional significant related-party transactions may place further
pressure on the capital base.

Moody's also cautions that in addition to the expected deterioration of
asset quality in the retail loan portfolio as it seasons (as the retail
loan book grew by over 50% during Q3 2010), there is significant risk in
the corporate loan book. This is due to the fact that over two-thirds of
the corporate loan book is represented by project and acquisition
finance. While the loans are currently being serviced (according to the
bank), their performance significantly depends on changes in the
macroeconomic environment and other borrower-specific factors which can
change rapidly. These risks, if combined with the high concentration in
the loan portfolio where top 20 loans comprise over 3.6 times of Tier 1
capital, could significantly deplete the capital.

Moody's notes that the probability of the above-mentioned developments
remains significant, and if any of these materialise NBT's current
capital adequacy levels (around 13% according to Russian Accounting
Standards) could fall significantly and potentially breach the minimum
capital ratio. Such an outcome could be aggravated by the fact that the
bank is targeting significant growth of its risk weighted assets.

Although NBT repaid all central bank loans in H1 2010, its liquidity
remains very vulnerable (especially at short-term liquidity) as a result
of (i) a significant long-term portion of the loan book tying up
liquidity; (ii) weak performance, which is expected to compel the bank to
utilise its liquidity cushion; and (iii) concerns about the stability of
NBT's funding base as the stickiness of the retail base is questionable
because it may include a significant share of retail customers searching
for yield (who are not resilient to crisis events), while corporate
customers also do not exhibit historical stability through crisis times
and lack granularity. Therefore the bank's liquidity may not be
sufficient to absorb medium-sized shock.

Moody's last rating action on NBT was on 6 April 2009 when the rating
agency downgraded the long-term ratings to Caa1 from B2 and the BFSR to
E from E+ and assigned a negative outlook.

The principal methodologies used in rating NBT 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 in the Rating Methodologies sub-directory on
Moody's website.

Domiciled in Moscow, the Russian Federation, NBT reported -- as at 30
June 2010 -- total (unaudited) IFRS assets of USD4.4 billion and total
equity of USD356 million. The bank recorded a net IFRS loss of USD43
million for H1 2010.

NATIONAL SCALE RATINGS

Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are
intended as relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global scale
ratings in that they are not globally comparable with the full universe
of Moody's rated entities, but only with NSRs for other rated debt
issues and issuers within the same country. NSRs are designated by a
".nn" country modifier signifying the relevant country, as in ".ru" for
Russia. For further information on Moody's approach to national scale
ratings, please refer to Moody's Rating Implementation Guidance published
in August 2010 entitled "Mapping Moody's National Scale Ratings to Global
Scale Ratings."

Company: Bank Trust

Full company nameBank "Trust"
Country of riskRussia
Country of registrationRussia
IndustryBanks

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