Moody's downgrades Bank Stroykredit's to Caa1/E; stable outlook, (Russia)
November 2, 2011 Moody's Investors Service
London, 02 November 2011 -- Moody's Investors Service has today downgraded the standalone bank financial strength rating (BFSR) of Bank Stroykredit
(BSK) to E from E+, and the long-term global local and foreign currency deposit ratings to Caa1 from B3. The bank's Not-Prime short-term local and foreign currency deposit ratings were affirmed.
Moody's assessment is primarily based on BSK's audited financial statements for 2010 prepared under IFRS, the bank's unaudited
(management) accounts for 2011, as well as its 2011 monthly accounting statements prepared under local statutory accounting rules (local GAAP).
The rating action reflects Moody's concerns over (i) BSK's risky approach towards accumulating significant levels of real estate linked mutual funds, (ii) weak recurring profitability, (iii) low capital adequacy and
(iv) limited reporting transparency.
Moody's notes that BSK has increased its exposure to non-core banking assets. As of 1 October 2011, investments to real estate linked mutual funds accounted for over 180% of the bank's regulatory capital (c.a.142% as of YE2010), reflecting BSK's high risk appetite. Moreover, the quality and liquidity of BSK's investments are difficult to assess because the bank does not disclose underlying assets of the mutual funds under IFRS.
Moody's also observes that the bank's low net income in 3Q 2011 was mainly attributable to positive revaluation of mutual funds, while recurring revenues barely covered operating expenses. Whilst BSK complies with Central Bank of Russia (CBR) regulatory requirements on capitalisation -- against the background of low profitability in 2010 and 3Q 2011, and 36% loan growth in 3Q 2011 -- the bank's regulatory capital adequacy decreased to 14.2% as of 1 October 2011 from 22% at YE2010, thus rendering the bank more vulnerable to seasoning of the loan book and to potential deterioration of its non-core assets. Given the adverse credit conditions in which BSK operates, the rating agency does not expect material improvements in the bank's capitalisation in 2011-2012.
According to Moody's, BSK's ratings are underpinned by the bank's growing deposit taking and lending franchise as well as a sizeable liquidity portfolio, with liquid assets accounting for over 25% of the bank's total assets as of 1 October 2011.
The methodologies used in this rating were Bank Financial Strength
Ratings: Global Methodology, published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology, published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Headquartered in Moscow, Russia, BSK reported total assets of RUB18 billion (US$593 million) under audited IFRS at YE2010.
Company — Stroycredit Bank
Full nameOJSC Commercial Bank «Stroycredit»