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Fitch Upgrades VTB's European Subsidiaries

November 15, 2011 | Fitch Ratings

Fitch Ratings-London/Moscow-14 November 2011: Fitch Ratings has upgraded VTB Capital plc.'s and VTB Bank (Austria) AG's Long-term Issuer Default Ratings (IDRs) to 'BBB' from 'BBB-'. The Outlooks are Stable. A full list of rating actions is at the end of this comment.

The upgrades equalise the banks' IDRs with that of their parent, Bank VTB (JSC) (VTB; 'BBB'/Stable), the second-largest bank in Russia, to reflect their increasing integration in VTB's consolidated group. This includes unified risk management, regular and more granular group reporting, integrated pricing, a centralised wholesale funding policy and considerable overlap in subsidiary and parent customer franchises. Fitch also notes the relatively small size of the subsidiaries' balance sheets, relative to that of the parent, making it easier to provide support, in case of need.

In addition, VTB continues to consider Europe as one of its core markets, where it mainly focuses on structured trade finance, structuring and syndication of loans for Russian/CIS clients (through both VTBA and VTBC) and equity transactions (mostly through VTBC). As part of the larger investment banking division within VTB, VTBC is also involved in client activity in commodity derivatives, client and proprietary activity in cash equities and equity derivatives, FX and interest rate derivatives businesses; the latter mostly represent hedging of VTB's positions arising from transactions with Russian/CIS clients.

Both subsidiaries' ratings continue to be based on support from VTB and ultimately from the Russian state. In Fitch's view, the Russian authorities are very unlikely to interfere or preclude VTB from providing support to VTBC and VTBA. Any rating action on the parent could trigger a similar rating action on VTBC and VTBA. Given the strong integration of both VTBA and VTBC into VTB, Fitch has not assigned them Viability Ratings.

At the operational level, Fitch notes VTBC's improved profitability, albeit with a setback in Q311 due to fairly severe market conditions, replacement of the risky legacy loans with somewhat less risky credit exposures and repo lending, and solid capital position (total capital adequacy ratio was 16.9% at end-9M11). Funding is concentrated, but liquidity risk is covered by the parent, which has a large contingency line for VTBC.

VTB Capital plc
Long-term foreign currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Support Rating: affirmed at '2'
Individual Rating: affirmed at 'D'

VTB Bank (Austria) AG
Long-term foreign currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Support Rating: affirmed at '2'
Individual Rating of 'D' unaffected

Company: VTB Capital

Full company nameCJSC "VTB Capital"
Country of riskRussia
Country of registrationRussia
IndustryFinancial institutions


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