London, 05 August 2011 -- Moody's Investors Service has today affirmed the
following ratings of Russlavbank (RSB): the standalone E+ bank financial
strength rating (BFSR), which maps to B3 on the long-term scale; the B3
long-term foreign and local currency deposit ratings, and the Not Prime
short-term foreign and local currency bank deposit ratings.
Moody's affirmation of RSB's ratings is based on the bank's audited
financial statements for 2010 prepared under IFRS, and its H1 2011 unaudited
results prepared under local GAAP.
According to Moody's, RSB's ratings remain constrained by (i) the bank's
weak asset quality; (ii) the relatively high single-name concentration on
the both sides of the bank's balance sheet; (iii) the short-term nature
of the funding base; and (iv) its small size and narrow banking franchise.
Moody's also observes that the ratings are underpinned by (i) RSB's good
position in the niche express cash transfer market which enables the bank
to generate solid recurring earnings, and (ii) the high level of liquid
assets, accounting for over 40% of the bank's total assets.
Although RSB accumulated significant loan loss reserves of 17% of gross
loans at YE2010, weak asset quality is the major challenge. The bank's 30
days past-due loans soared to 20% of gross loans at the same date, from
9% the previous year. Poor asset quality also weighs on RSB's
profitability which has declined significantly over the past three years.
Moreover, the level of single-name concentration remained relatively
high. The top-20 credit exposures accounted for 42% of the gross loan
portfolio, or exceeded 200% of its Tier 1 capital at YE2010, thus
exposing its earnings to potential volatility in case of credit stress.
Moody's views positively that RSB's solid recurring earnings (reported in
2010) were sufficient to cover an increased level of provisioning. The
rating agency notes the bank's good profitability metrics which are
driven by healthy net interest margin (7% in 2010) and fee-generating
capacity. RSB's proprietary 'CONTACT' money transfer system remains the
main source of the bank's fee and commission earnings, which, in turn,
comprised 44% of its operating revenues at YE2010. At the same time,
accrued losses from problem loans and shrinkage of interest-earning
assets have contributed to a worsening of RSB's net income.