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Fitch Affirms 3 Foreign-Owned Russian Banks

July 12, 2013 - Fitch Ratings

 

Fitch Ratings has affirmed the Long-term Issuer Default Ratings of ZAO Raiffeisenbank and ZAO Citibank at 'BBB+' with a Stable Outlook and ZAO UniCredit Bank's Long-term Issuer Default Rating at 'BBB' with a Negative Outlook. A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, SUPPORT RATINGS, NATIONAL RATINGS, SENIOR DEBT
The three banks' IDRs, National Ratings and ZAO Raiffeisenbank's senior debt ratings are driven by potential support from foreign shareholders. ZAO UniCredit Bank is 100%-owned by UniCredit S.p.A. (UC; BBB+/Negative) through its Vienna-based subsidiary UniCredit Bank Austria AG (UBA; A/Stable). ZAO Raiffeisenbank is a 100%-subsidiary of Raiffeisen Bank International AG (RBI, A/Stable). ZAO Citibank is fully-owned by Citigroup Inc. (A/Stable).
The affirmation of the three banks' Support Ratings at '2' reflects Fitch's view that their parents will continue to have a strong propensity to support these banks given the strategic importance of the Russian market for the parents, the high level of operational and management integration between the banks and their parents, common branding and importance for group operational performance (in the case of ZAO Raiffeisenbank).
RATING SENSITIVITIES - IDRS, SUPPORT RATINGS, NATIONAL RATINGS, SENIOR DEBT
Fitch notches ZAO UniCredit Bank's Long-term IDRs down once from UC's Long-term IDR. The Negative Outlook on ZAO UniCredit Bank's Long-term IDRs mirrors that on UC's Long-term IDR. If UC was downgraded, ZAO UniCredit Bank's Long-term IDR and National Rating would also be downgraded. Any further downside risk for ZAO UniCredit's Long-term IDR would likely be limited to one notch, given its 'bbb-' VR. ZAO UniCredit Bank's ratings could stabilise at their current levels if the Outlook on UC was revised to Stable.
The Long-term IDRs, National Ratings of ZAO Raiffeisenbank and ZAO Citibank and senior debt ratings of ZAO Raiffeisenbank are currently constrained by Russia's Country Ceiling (BBB+) and could be upgraded or downgraded if a change in Russia's sovereign ratings resulted in a change in the Country Ceiling. A two-notch downgrade of either RBI or Citigroup could also drive a downgrade of their Russian subsidiaries, although this is not currently anticipated given the Stable Outlooks on the parents' ratings.
KEY RATING DRIVERS -VIABILITY RATINGS (VRS)
The affirmation of the three banks' VRs at 'bbb-' reflects the banks' continued track record of solid financial performance; below sector average credit costs resulting from access to better quality customers and sound risk management controls; comfortable capital and liquidity positions; generally stable funding base, resulting in below-peers' funding costs; moderate loans/deposits ratios (below 100% at end-2012 and more conservative at around 50% at ZAO Citibank) and effective cost controls.
The VRs also factor in the sluggish performance of the Russian economy (Fitch forecasts GDP growth to fall to 2.2% in 2013 from 3.4% in 2012 and to pick up only moderately to 3.0% in 2014) and increasing competitive pressures, while all the three banks have modest market shares in a sector dominated by state-owned banks. The VRs also factor in significant foreign currency lending and borrower concentrations at ZAO Raiffeisenbank and ZAO UniCredit Bank, the still large real estate exposure at ZAO Raiffeisenbank, depositor concentrations at ZAO UniCredit Bank and franchise limitations of ZAO Citibank.
Operating returns remained healthy (with operating ROAE in the range of 20%-23% for the three banks in 2012), supported by well-established customer franchises. nternal capital generation as well as an equity injection for ZAO UniCredit Bank, underpinned capital ratios. Asset quality remained stable. At end-Q113, ZAO Raiffeisenbank reported NPLs (loans overdue by more than 90 days) of 4.4% of gross loans and a Basel II Tier 1 ratio of 18.93%. At end-2012, ZAO UniCredit Bank reported NPLs of 3.2% and a Basel II Tier 1 ratio of 13.7%; ZAO Citibank maintained exceptionally good loan quality (with corporate NPLs below 1% at end-2012 and less than 1% NPL generation in retail), with the regulatory capital ratio expected to remain sound at above 15% even after a planned dividend payment in 2013.
Liquidity cushions are comfortable, protecting against possible volatility in the concentrated corporate deposit base. ZAO Raiffeisenbank and ZAO UniCredit Bank remain net creditors to their parent institutions, reflecting excess liquidity from short-term customer deposits.
RATING SENSITIVITIES - VRS
Upside potential for the VRs is limited given the current level of Russia's sovereign ratings (BBB/Stable), the banks' moderate market shares and likely cyclical performance of the Russian economy and therefore the banks. An unexpected sharp deterioration in asset quality, or markedly higher funding costs for ZAO Raiffeisenbank and ZAO UniCredit Bank, resulting from an increase in problems at their parent banks, undermining their business models, could generate downward pressure on the VRs.
The rating actions are as follows:

ZAO Raiffeisenbank
Long-term foreign and local currency IDRs: affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F2'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Stable
Support Rating: affirmed at '2'
Senior unsecured debt: affirmed at 'BBB+'/F2 and at 'AAA(rus)'
Senior unsecured upcoming RUB-denominated bonds: affirmed at Long-term 'BBB+(EXP)' and National Long-term 'AAA(rus)(EXP)'
Viability Rating: affirmed at 'bbb-'

ZAO UniCredit Bank
Long-term foreign and local currency IDRs: affirmed at 'BBB'; Outlook Negative
Short-term foreign and local currency IDRs: affirmed at 'F3'
National Long-term rating: affirmed at 'AAA(rus)'; Outlook Negative
Support Rating: affirmed at '2'
Viability Rating: affirmed at 'bbb-'

ZAO Citibank
Long-term foreign currency IDRs: affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR affirmed at 'F2'
National Long Term Rating affirmed at 'AAA(rus)'; Outlook Stable
Viability Rating affirmed at 'bbb-'
Support Rating affirmed at '2'
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Issuer: KB Citibank
Outstanding issues:
Issuer rating:
ACRAAAA(RU)/StableACRA national rating scale for the Russian Federation07/06/2017
Fitch RatingsBBB-/PositiveLT Int. Scale (foreign curr.)09/28/2017
Fitch RatingsWithdrawn/National Scale (Russia)01/27/2017
Fitch RatingsBBB-/PositiveLT Int. Scale (local curr.)09/28/2017
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