CIS Credit Monitor: MDM Bank, Ursa Bank, Bank SPB

MDM Bank (BB/Ba2/BB-) 2008 IFRS results; URSA Bank (NR/Ba3/B+): 9M 2008 IFRS results

MDM Bank published FYE 2008 IFRS results last week and URSA Bank unveiled only 9M 2008 financials. We recall that MDM Bank and URSA Bank are currently going through an integration process with each other. In general we treat the integration as positive, especially for URSA Bank. It will enable it to create a strong universal bank with a solid regional position and a more balanced financial profile. However, taking into consideration the weaker loan book metrics of URSA we expect the group financials to show an NPL ratio higher than MDM Bank and we think that provisioning will worsen combined returns.

We believe the combined entity will have very high strategic importance and the bank will continue receiving state support. The structure of consolidation has been changed several times, however in our understanding the group will retain supranationals among its shareholders which gives additional comfort to investors. After the merger was announced we recommended URSA bank bonds for purchase and they significantly tightened to MDM issues. MDM and URSA Bank bonds are currently priced tight to other major banks and we rate them Neutral suggesting that they can continue improving with the market. URSA Bank 2010 rouble bond is still offered at close to 80% of par with a yield of 37% – we believe the issue could be interesting for purchase.


Bank Saint Petersburg (NR/Ba3/B): FYE 2008 financial results

Bank Saint Petersburg reported strong 2008 financial results last week with its balance sheet growing at a fast pace and profitability remaining high. Despite a remarkably low level of reported non-performing loans, asset quality is likely to deteriorate this year adding pressures to the capitalisation of the bank. Support from shareholders and VEB would be crucial to ease the stress in the capital ratio. Following recent repurchase of the outstanding Eurobond, moderate short-term foreign obligations should be manageable in our view. We believe that the bank’s Eurobonds are fairly priced and maintain Neutral rating.