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Moody's takes multiple rating actions on Russian banks

April 02, 2013 | Cbonds

Moody's Investors Service has today placed the long-term senior debt and deposit ratings of Sberbank (A3), Bank VTB (Baa1), VTB24 (Baa1) and Russian Agricultural Bank (Baa1) on review for downgrade. Moody's has placed these banks' ratings on review to assess the level of capacity and willingness of the Russian government (Baa1 stable) to provide systemic support to these banks in case of need. Sberbank's long-term foreign currency deposit rating of Baa1 was affirmed, with a stable outlook.

At the same time, Moody's has also placed the subordinated debt ratings of six Russian banks (including the banks specified above) on review for downgrade. The review of subordinated debt ratings is driven by Moody's concerns that the risk profile of junior debt may have increased in Russia, given the global trends of imposing losses on junior creditors.

Finally, the senior debt and deposit ratings, and issuer ratings of seven financial institutions were affirmed, with stable outlooks. These ratings are not subject to the review.

The list of Russian banks affected by today's rating actions can be found at the end of this press release.

RATINGS RATIONALE

RATIONALE FOR REVIEW OF SBERBANK, BANK VTB, VTB24 AND RUSSIAN AGRICULTURAL BANK

Today's review is driven by Moody's concerns that the Russian government's capacity and willingness to provide systemic support to large banks in times of systemic stress could potentially be lower than previously anticipated by the rating agency. As highlighted by Moody's Special Comment "Systemic Support for Russian Banks: a Changing Landscape" (http://www.moodys.com/research/Systemic-Support-for-Russian-Banks-a-Changing-Landscape--PBC_147713) published in December 2012, the rating agency sees two trends that could lead to somewhat lower systemic support assumptions imputed into Russian banks' debt and deposit ratings:

1. Given the Russian federal budget's reliance on high oil prices, as evidenced by a fiscal break-even price of around $100 per barrel, Moody's considers the capacity of Russian authorities to provide systemic support to large banks in a systemic crisis to be increasingly susceptible to the risk of a decline in oil prices. Although Moody's central scenario anticipates high oil prices in 2013, the rating agency nevertheless sees tail risks related to the developing euro area economic crisis, as recently highlighted by negative developments in Cyprus. If oil prices decrease substantially, any systemic support to large Russian banks could be constrained by multiple demand for state support from other entities such as large industrial companies and sub-sovereigns, at a time when the economy and the finances of the government would be under intense pressure.

2. As the government's bank privatisation plan progresses, Moody's sees the risk that the government's willingness to provide systemic support to banks could be affected in the medium term. In Moody's opinion, the implementation of the privatisation plan may lead to a somewhat higher likelihood of the inclusion of market solutions regarding the provision of support for large troubled banks in the event of need.

Despite the pressure points identified above, Moody's is likely to continue to incorporate a high likelihood of systemic support into the ratings of large Russian banks and financial government-related institutions (GRIs), based on the government's strong track record of support, still adequate reserves and controlling ownership of large banks.

FOCUS OF THE REVIEW

The review will focus on (1) the sustainability of government finances and reserves to cover for any capital and liquidity shortfall at large Russian banks in case of need; and (2) the likelihood of the government's bank privatisation plan leading to the inclusion of market solutions surrounding the provision of systemic support to large troubled banks in the case of need.

RATIONALE FOR REVIEW OF SUBORDINATED DEBT RATINGS OF SIX BANKS

The review of the subordinated debt ratings of six Russian banks is driven by Moody's concerns that the risk profile of junior debt may have increased in Russia, given the global trends of imposing losses on junior creditors as part of bank bailouts orchestrated by governments. In addition, the recently enacted legislation by the Central Bank of Russia aligned certain domestic capital rules with Basel III, which makes new subordinated debt instruments and hybrids "bail-inable" (forced conversion into bank shares), implying losses for creditors outside of liquidation. Moody's understands that subordinated debt issued by Russian banks under previous regulatory rules (pre-March 2013) was grandfathered. However, the rating agency will consider whether these "old" debt instruments could be potentially "bailed-in" in line with global trends.

As a result, the review of subordinated debt ratings will focus on the possibility of a decrease of systemic support currently included in those ratings.

RATIONALE FOR AFFIRMATION OF SEVEN BANKS

Moody's has affirmed the ratings of seven Russian financial institutions for the following reasons:

1. Very high systemic importance and/or important policy roles in the case of (i) Vnesheconombank; (ii) Agency for Housing Mortgage Lending (AHML); and (iii) SME Bank (Vnesheconombank's subsidiary).

2. Limited sensitivity to a potential parental downgrade in the case of (i) Bank of Moscow; and (ii) TransCreditBank (both are subsidiaries of VTB).

3. Already lower systemic support assumptions in the case of (i) Gazprombank; and (ii) Alfa-Bank.

LIST OF AFFECTED RATINGS

Sberbank

- Long-term foreign currency deposit rating of Baa1, affirmed; stable outlook

- Long-term local currency deposit rating of A3, placed on review for downgrade

- Long-term foreign and local currency senior debt ratings of A3, placed on review for downgrade

- Long-term subordinated debt rating of Baa1, placed on review for downgrade

- Short-term debt and deposit ratings of P-2, affirmed.

Bank VTB, JSC

- Long-term foreign and local currency deposit ratings of Baa1, placed on review for downgrade

- Long-term foreign and local currency senior debt ratings of Baa1, placed on review for downgrade

- Long-term subordinated debt ratings of Baa2, placed on review for downgrade

- Short-term debt and deposit ratings of P-2, placed on review for downgrade

Bank VTB North-West (special-purpose vehicle)

- Long-term subordinated debt ratings of Baa2, placed on review for downgrade

VTB Capital S.A. (special-purpose vehicle)

- Long-term foreign currency senior debt ratings of Baa1, placed on review for downgrade

VTB24

- Long-term foreign and local currency deposit ratings of Baa1, placed on review for downgrade

- Long-term local currency senior secured and senior unsecured debt ratings of Baa1, placed on review for downgrade

- Short-term deposit ratings of P-2, placed on review for downgrade.

Russian Agricultural Bank

- Long-term foreign and local currency deposit ratings of Baa1, placed on review for downgrade

- Long-term foreign and local currency senior debt ratings of Baa1, placed on review for downgrade

- Long-term subordinated debt ratings of Baa2, placed on review for downgrade

- Short-term deposit ratings of P-2, placed on review for downgrade

JSCB Bank of Moscow

- Long-term foreign currency subordinated debt rating of Ba3, placed on review for downgrade

- Long-term foreign and local currency deposit ratings of Ba2, affirmed; stable outlook

- Long-term foreign and local currency senior debt ratings of Ba2, affirmed; stable outlook

- Short-term foreign currency deposit rating of Not-Prime, affirmed

Kuznetski Capital S.A. (special-purpose vehicle)

- Long-term foreign currency subordinated debt ratings of Ba3, placed on review for possible downgrade

- Long-term foreign currency senior debt ratings of Ba2, affirmed; stable outlook

TransCreditBank

- Long-term foreign and local currency deposit ratings of Baa3, affirmed; stable outlook

- Long-term local currency senior debt ratings of Baa3, affirmed; stable outlook

- Short-term foreign and local currency deposit ratings of P-3, affirmed

Vnesheconombank

- Issuer rating of Baa1, affirmed; stable outlook

- Short-term issuer rating of P-2, affirmed

Agency for Housing Mortgage Lending OJSC

- Issuer rating of Baa1, affirmed; stable outlook

- Long-term local currency senior secured and senior unsecured debt ratings of Baa1, affirmed; stable outlook

- Short-term issuer rating of P-2, affirmed

SME Bank

- Long-term foreign and local currency deposit ratings of Baa2, affirmed; stable outlook

- Long-term local currency senior debt ratings of Baa2, affirmed; stable outlook

- Short-term deposit ratings of P-2, affirmed

Alfa-Bank

- Long-term subordinated debt ratings of Ba2, placed on review for downgrade

- Long-term foreign and local currency deposit ratings of Ba1, affirmed; stable outlook

- Long-term foreign and local currency senior debt ratings of Ba1, affirmed; stable outlook

- Short-term deposit ratings of Not-Prime, affirmed

Alfa MTN Invest Ltd (special-purpose vehicle)

- Long-term foreign currency senior debt ratings of Ba1, affirmed; stable outlook

Alfa MTN Issuance Limited (special-purpose vehicle)

- Long-term foreign currency senior debt ratings of Ba1, affirmed; stable outlook

- Short-term debt ratings of (P) Not-Prime, affirmed

Alfa MTN Markets Limited (special-purpose vehicle)

- Long-term foreign currency senior debt ratings of (P)Ba1, affirmed; stable outlook

- Short-term debt ratings of (P) Not-Prime, affirmed

Alfa MTN Projects Limited (special-purpose vehicle)

- Long-term foreign currency senior debt ratings of (P)Ba1, affirmed; stable outlook

Gazprombank

- Long-term subordinated debt ratings of Ba1, placed on review for downgrade

- Long-term foreign and local currency deposit ratings of Baa3, affirmed; stable outlook

- Long-term foreign and local currency senior debt ratings of Baa3, affirmed; stable outlook

- Short-term foreign currency deposit rating of P-3, affirmed

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Additionally, the principal methodologies used in rating Vnesheconombank and Agency for Housing Mortgage Lending OJSC were Moody's Consolidated Global Bank Rating Methodology published in June 2012, and Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Company: Sberbank CIB

Full company nameCJSC Sberbank CIB
Country of riskRussia
IndustryFinancial institutions

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