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Moody's affirms Rosgosstrakh Bank's B2 ratings; outlook stable

July 09, 2013 | Moody's Investors Service

Moody's Investors Service has today affirmed the
B2 long-term local- and foreign-currency deposit ratings of Rosgosstrakh Bank (Russia), as well as the standalone bank financial strength rating
(BFSR) of E+, equivalent to a baseline credit assessment (BCA) of b2. The bank's Not Prime short-term local and foreign-currency deposit ratings were also affirmed. The outlook on the bank's BFSR and the long-term ratings is stable.


Moody's affirmation of Rosgosstrakh Bank's ratings reflects (1) the bank's high level of reported capital adequacy; and (2) close business integration into the leading Russian insurance company Rosgosstrakh, which enables the bank to build up its business footprint in the retail segment and continue to diversify its operations into business segments with more sustainable revenue. At the same time, Rosgosstrakh Bank's ratings are constrained by weak operating performance and the bank's still excessive exposure to the financial, real estate and construction sectors, which, together with high single-name credit concentrations and related-party lending, weakens the bank's capital profile. At the same time, Moody's notes that these risks are partly mitigated by the reasonably high level of loan loss reserves.

Rosgosstrakh Bank maintains its capital ratios at a high level. The bank's Tier 1 and total capital adequacy ratios stood at 13.85% and 20.77%, respectively (as per Basel I approach), according to Rosgosstrakh Bank's audited IFRS as year-end 2012.

Moody's also notes that Rosgosstrakh Bank has gradually increased its operations in the more sustainable retail sector due to the recent closer integration into one of the largest Russian insurance companies -- Rosgosstrakh (not rated) -- and adoption of the new strategy to diversify away from real estate and investment loans into the retail segment. The proportion of loans (mainly unsecured) provided to retail customers increased throughout 2012, and as at year-end 2012 stood at 38% of total gross loans (2011: 25%; 2010: 28.2%) while retail deposits as a proportion of total customer funding also increased in 2012 to 51.9%
(2011: 43.7%).

Moody's says that despite Rosgosstrakh Bank's relatively healthy profitability, the performance of the bank's core operations remains weak. According to the bank's audited IFRS report, net income for 2012 was RUB2.4 billion, translating into strong return on average assets of 2.5%. At the same time, out of RUB2.7 billion pre-tax income reported in 2012, RUB2.2 billion was received as one-off gain from real estate operations. Excluding the one-off gains, profitability of Rosgosstrakh Bank's operations would have been breakeven.

Moody's notes Rosgosstrakh Bank's high exposure to the financial, real estate and construction sectors -- albeit recently declining. This exposure, together with an excessive level of related-party lending and high single-name concentrations undermines the quality of the bank's capital. As at year-end 2012, gross loans provided to companies from the financial, real estate and construction sectors declined but still stood at a relatively high 213% of the bank's Tier I capital (2011: 298%;
2010:332%) and predominantly included related-party loans that -- at year-end 2012 -- accounted for 102% of the bank's Tier 1 capital (2011:
142%; 2010: 218%). Single-name concentrations are also high, as the 20 largest credit exposures accounted for approximately 250% of the Rosgosstrakh Bank's Tier 1 capital. The above-mentioned risks are partly mitigated by the reasonably high level of loan loss reserves that stood at 15.2% of gross loans at year-end 2012.


Negative pressure could be exerted on Rosgosstrakh Bank's ratings if the ongoing rapid growth of retail lending negatively affects its asset quality and capital. Further growth of single-party, related-party or industry concentrations and/or an increase in non-core assets could have negative rating implications.

Rosgosstrakh Bank's successful diversification into the retail segment -- supported by strong operating performance of this business segment and combined with a decline of related-party exposures and single-name concentrations -- might lead to a rating upgrade.

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on for a copy of this methodology.

Domiciled in Moscow, Russia, Rosgosstrakh Bank reported total assets of
RUB99.1 billion at year-end 2012 under IFRS (audited), up 8% compared to year-end 2011. The bank's net profit totalled RUB2.4 billion in 2012, a 77% increase compared to 2011.

Company: RGS Bank

Full company namePublic joint-stock company "Rosgosstrakh Bank"
Country of riskRussia
Country of registrationRussia


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