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TransCreditBank Upgraded To 'BB+' And 'ruAA+' On Acquisition By VTB; Outlook Stable

July 25, 2011 Standard & Poor's
MOSCOW (Standard & Poor's) July 25, 2011--Standard & Poor's Ratings Services said today that it had raised its long-term counterparty credit rating on TransCreditBank to'BB+' and the Russia national scale rating to 'ruAA+'. The outlook is stable.

At the same time, the 'B' short-term counterparty credit rating was affirmed.

The rating action reflects our view that the ongoing acquisition of TransCreditBank by JSC VTB Bank (VTB; BBB/Watch Neg/A-3) is having a positive impact on TransCreditBank's stand-alone credit profile. It also reflects our assessment that the probability of exceptional shareholder support, if necessary, remains unchanged.

On Oct. 4, 2010, the supervisory board of VTB approved the phased acquisition of 100% of TransCreditBank. Earlier this month, VTB increased its stake to 72.88, leaving Russian Railways (JSC) (RZD; BBB/Stable/--) with a blocking portfolio of 25% plus one share. VTB plans to acquire the remainder of the bank by Jan. 1, 2014.

Our rating action assumes a smooth transfer of ownership to VTB with no negative impact on TransCreditBank's customer franchise and operations. VTB's status as the controlling shareholder and strategic investor is likely in our view to lead to improvements in TransCreditBank's capitalization, cost of funds, and sales effectiveness.

The long-term rating on TransCreditBank continues to incorporate a three-notch uplift above its stand-alone credit profile to reflect VTB's role as the majority shareholder.

The ratings on TransCreditBank continue to reflect our view of the bank's high single-name concentrations, relatively weak capitalization at a time of renewed rapid business expansion, and high credit risks. These weaknesses are partly offset by TransCreditBank's strong business links to and support from RZD and increasing operational support from VTB. They are also offset by the bank's funding, which is less confidence-sensitive funding than that of its peers, its good core revenue generation, and its asset quality, which is consistently better than that of its peers. We expect RZD to continue servicing its major operations through TransCreditBank.

With total assets of Russian ruble (RUB) 391 billion ($12.8 billion) as of Dec. 31, 2010, TransCreditBank ranks among Russia's top 15 banks in terms of assets.

While concentration risks are high, with the 20 largest borrowers representing almost three times the bank's adjusted total equity, we consider that the bank's asset quality is better than the Russian banking sector average. TransCreditBank focuses on high quality corporate clientele, including RZD and related companies (8.4% of gross loans on Dec. 31, 2010), and RZD employees (22.7%).

On Dec. 31, 2010, TransCreditBank's risk-adjusted capital (RAC) ratio before adjustments for diversification stood at a weak 3.9%. The bank's capitalization could fall further due to resumed loan growth. At the same time, we expect VTB to inject additional capital into TransCreditBank over the next three years. In April 2011, VTB injected RUB5.5 billion and plans to inject a further RUB3 billion in the form of long-term subordinated debt (which is not included in our calculation of the RAC ratio). We understand that VTB plans to inject about RUB7 billion in the first quarter of 2012 and maintain the bank's Tier I capitalization at a minimum 9.5%, which roughly translates to a RAC ratio of 4%-6%.

Provisions, representing 5.5% of total gross loans as of Dec. 31, 2010, are relatively tight, considering TransCreditBank's weak capitalization levels and very high recent growth. Asset quality is better than the bank's peer group average with 3.6% of total loans overdue by more than 90 days and restructured loans at about 1% of total loans.

RZD and related parties continue to support TransCreditBank's funding and liquidity, representing 37% of the bank's total liabilities as of Dec. 31, 2010. We believe that this funding is less confidence sensitive than that of the bank's peers and we expect that RZD will maintain this funding support.

The stable outlook reflects our expectation that TransCreditBank's asset quality indicators and profitability will remain better than the system average.
Company — TransCreditBank
  • Full name
    TransCreditBank OJSC
  • Registration country
  • Industry