Fitch Affirms VTB (Austria) at 'BBB-'; Outlook Stable
August 12, 2011 Fitch Ratings
Fitch Ratings-London/Moscow-11 August 2011: Fitch Ratings has affirmed VTB Bank (Austria) AG's (VTBA) Long-term Issuer Default Rating (IDR) at BBB- with a Stable Outlook. A full list of rating actions is at the end of this commentary.
The affirmation of the bank's Long-term IDR reflects Fitch's view that there is a high probability of support from its parent, Russia's Bank VTB (VTB; rated 'BBB'/Stable; the second-largest Russian bank with 85.5% state-ownership) and, ultimately, the Russian authorities, in case of need. Any movement in VTB's IDR would likely affect the ratings of its subsidiaries.
Fitch believes that VTBA has a narrow independent franchise, which is a key constraint for its Individual Rating. There appears to be a high level of integration within the VTB group and a close relationship between VTB and VTBA. The majority of VTBA's business is of Russia/CIS origin, with an enhanced focus on VTB's clients. The agency understands that risk management and front office work is closely coordinated with the parent. VTBA's limited standalone profile is also the reason Fitch has not assigned a Viability Rating.
VTBA's funding base is concentrated and mainly sourced from capital and interbank markets. In 2009-2010, the bank enjoyed a considerable inflow of Russian banks' loro accounts, which now represent VTBA's key funding source. Name concentrations are high, but remained stable in recent years, even during times of stress in the financial markets. However, VTBA's ability to raise funding is mainly driven by its affiliation with VTB. Fitch notes that VTBA also books sizable amounts of fiduciary business off balance sheet. The agency cannot rule out the possibility that some of the on-balance sheet bank funding may be directly related to its loan exposures. VTBA has worked at diversifying its funding base. To this end, the bank has made efforts at raising retail deposits and also attracted a sizeable precious metal line from the Central Bank of Russia.
VTBA enjoys reasonable capitalisation with total capital adequacy ratio under Basel II standing at 14.3% at end-H111 on a consolidated basis (compared with 18.6% at end-2010). Performance has been reasonably healthy, with ROAE of 18.2% and 22.6% in 2010 and 2009, respectively. Profits benefited from wider margins on the back of cheaper funding and only moderate loan impairment charges. Asset quality has been reasonable for a bank that is focussed on Russia/CIS, with NPLs peaking at 5.7% of gross loans on a consolidated basis.
The rating actions are as follows:
VTB Bank (Austria) AG
Long-term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable
Short-term foreign currency IDR: affirmed at 'F3'
Support Rating: affirmed at '2'
Individual Rating: affirmed at 'D'
Company — VTB Bank Austria
Full nameVTB Bank (Austria) AG