Fitch Ratings-London/Moscow-28 November 2006: Fitch Ratings has today upgraded Russia-based Bank Uralsib’s ("Uralsib") Issuer Default rating (“IDR”) to ‘B+’ from ‘B’. The bank's other ratings are affirmed at Short-term 'B', Individual 'D' and Support '4'. Following the upgrade, the Outlook on the IDR is now Stable.
At the same time, Fitch has affirmed Financial Corporation Nikoil’s (“Nikoil”) ratings of Long-term ‘B-’ with Stable Outlook, Short-term ‘B’, Individual ‘D/E’, Support ‘5’ and simultaneously withdrawn them. Nikoil’s ratings are withdrawn in connection with the ongoing restructuring of Uralsib Financial Corporation (”UFC”).
The upgrade reflects Uralsib’s strengthened franchise, substantial equity base and reduced loan concentrations. It also takes into account Fitch’s view of the improving, albeit still challenging, Russian operating environment and the enhanced prospects for the country’s leading privately-owned banks. The ratings are also supported by Uralsib’s currently comfortable liquidity and low levels of loan impairment.
However, the ratings also reflect the bank’s modest core profitability, substantial market risk exposures and significant related-party lending. A large, strategic stake in the equity of Russian oil company Lukoil, coupled with other positions taken in 2006 in Russian oil and gas stocks, could result in considerable volatility in the bank's earnings and equity. At the same time, Fitch notes that Uralsib's capital ratios could withstand a large reduction in the value of these investments and still remain reasonable.
Improvements in core earnings and a reduction in market risk exposures, coupled with improvements in the operating environment, could help to create upward pressure on the ratings. Downward pressure on the ratings is not expected in the near term, although any further significant increase in market risk appetite or deterioration of capitalization could have a negative effect.