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Moody's downgrades Bank Moscow-Minsk (Belarus) to Ba3; Negative outlook

July 9, 2009
Moscow, July 09, 2009 -- Moody's Investors Service has today downgraded the
global scale long-term local currency rating of Bank Moscow-Minsk
("BMM") to Ba3 from Ba2 and assigned a negative outlook. BMM's other ratings
remained unchanged with a stable outlook.

"The downgrade of the Ba2 long-term local currency rating reflects
Moody's view of the increased interdependence between the financial
profiles of BMM and its parent, Bank of Moscow, rated Baa1 with a
negative outlook, following a deterioration of macroeconomic environment
in Belarus," says Vladlen Kuznetsov, a Moscow-based Moody's Assistant
Vice President -- Analyst, and lead analyst for BMM.

BMM is highly dependant on its parent for future capital injections in
order to withstand further possible asset quality deterioration. Moody's
notes that BMM's asset quality is particularly vulnerable to industries
like manufacturing and production, construction and machinery
manufacturing which have already started to demonstrate deteriorating
credit quality, representing 1.7x, 0.7x, and 0.2x, respectively, of
year-end 2008 equity.

Although the level of overdue corporate loans in BMM's portfolio is
currently low (less than 1%), the level of delinquencies is expected to
rise significantly. Thus the capital is expected to experience
significant pressure, especially given the sizeable concentrations of
loans in proportion to equity. In addition, Moody's highlights that the
retail loan portfolio, which accounts for almost half of the loan book,
also shows signs of deterioration with the ratio of overdue loans
increased by two times to 4% since year-end 2008. As a mitigating factor,
there is a high integration of risk management standards between Bank of
Moscow (which displays a reasonable level of credit risk management) and
BMM which provide for additional assurance over the ability of BMM to
select better borrowers and ensure reasonable credit enhancements of

In addition, BMM has a high level of dependence on the parent for funding
and liquidity (e.g. 22% of total funding at year-end 2008 or USD92
million to date), which grew in significance and is expected to grow
further given that alternative funding sources for BMM being constrained.
Moody's also observes that the bank places a considerable reliance in its
operations on the continuity of funding from Bank of Moscow which is
currently being rolled over constantly, enabling BMM to continue lending
with a moderate reduction of business volumes. Apart from the high level
of dependence on the parent, the bank's liquidity is challenged by
concentration on both sides of the balance sheet (e.g. with one customer
accounting for 45% of customer funding) as well as potential asset
quality deterioration that could squeeze liquidity, thus additional
liquidity support from the parent could be needed.

Moody's notes that Belarus' economy is closely correlated to the
economies of its neighbours, and is especially dependant on demand from
the CIS countries (e.g. Russia) which have experienced the impact of
global financial instability slightly earlier, hence the credit standing
of both BMM and Bank of Moscow are subjected to the same macroeconomic
trends going forward.

Moody's rating action also takes into account weakening financial
profiles of both the parent and subsidiary, resulting in higher possible
needs for support to BMM and lower ability of Bank of Moscow to provide

Moody's also notes that the BMM's Ba3 long-term local currency deposit
rating continues to factor in (i) its B2 Baseline Credit Assessment
(BCA), (ii) low systemic support given the bank's notable market shares
and (iii) Moody's assessment of a very high probability of parental
support from Bank of Moscow (rated Baa1/D, negative outlook) -- in the
event of a stress situation. Moody's assessment of the support
probability is based on the bank's 100% ownership by Bank of Moscow, its
strategic fit to their operations in light of its importance for Bank of
Moscow and the City of Moscow in supporting their relationship with the
Belarusian administration. As a result, the long-term local currency
deposit rating receives a two-notch uplift to Ba3 from the bank's B2 BCA.

The negative outlook reflects Moody's concerns that the worsening
economic conditions in Belarus are likely to translate into a
deterioration of BMM's financial fundamentals. In particular, potential
asset quality deterioration -- given Bank of Moscow's exposure to
industries most affected by the downturn -- is likely to deplete the
bank's capital cushion and put pressure on its liquidity which is
substantially dependant on wholesale funding. The outlook also reflects
the negative outlook on Bank of Moscow's D bank financial strength rating
(BFSR) which is used as a measure of ability to provide support.

Moody's explained that it has applied a number of scenarios (base-case
and stressed) to the banks' loan books and revealed that BMM's capital
adequacy may rapidly decline as soon as the overall asset quality
deteriorates, and BMM is likely to need additional recapitalisation from
its parent.

Moody's previous rating action on BMM was on 24 February 2009 when the
rating agency changed the outlook on the bank's Ba2 long-term local
currency ratings to negative from stable.

The principal methodologies used in rating BMM are "Bank Financial
Strength Ratings: Global Methodology" and "Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology",
which can be found at www.moodys.com in the Credit Policy & Methodologies
directory, in the Ratings Methodologies subdirectory. Other methodologies
and factors that may have been considered in the process of rating BMM
can also be found in the Credit Policy & Methodologies directory.

Headquartered in Minsk, Belarus, BMM reported total consolidated assets
of USD517 million and total equity of USD50 million, and ranked ninth by
assets among Belarusian banks as of 31 December 2008. BMM is active in
corporate and retail transactions, with the former supported by its links
with Bank of Moscow.

Headquartered in Moscow, Russian Federation, Bank of Moscow reported
total consolidated assets -- as at year-end 2008 -- of RUB801 billion
(USD28 billion) and equity of RUB68 billion (USD2.3 billion). Bank of
Moscow was the fifth largest bank in the country at end-Q1 2009. It is
majority controlled by the City of Moscow (directly and indirectly).
Company — Bank Dabrabyt
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