Moody's upgrades TransCreditBank to Baa3; stable outlook
April 27, 2012 Moody's Investors Service
London, 27 April 2012 -- Moody's Investors Service has today upgraded the following ratings of TransCreditBank: long-term local and foreign currency debt and deposit ratings to Baa3 from Ba1, and the local and foreign currency subordinated debt ratings to (P)Ba1 from (P)Ba2. The bank's Not-Prime local and foreign currency debt and deposit ratings and its D- standalone bank financial strength rating (BFSR; mapping to ba3 on the long-term scale) remain unchanged. All ratings carry a stable outlook.
Moody's assessment is primarily based on (i) the official press releases of TransCreditBank and its majority shareholder Bank VTB, (ii) TransCreditBank's audited financial statements for 2011 prepared under IFRS, and (iii) the information the rating agency received from senior management of VTB and TransCreditBank.
According to Moody's, the ratings upgrade reflects TransCreditBank's closer integration into VTB group, and greater evidence of VTB's increased commitment to support its new subsidiary.
Moody's notes that TransCreditBank now operates under VTB group's standards, including for risk management. TransCreditBank's business focus will be gradually moving away from corporate banking towards the retail and SME segment, in preparation for the planned merger with VTB24 in 2014 (VTB24 is VTB's retail and SME subsidiary).
VTB's commitment to support TransCreditBank was demonstrated through new capital and funding. In February 2012, TransCreditBank received RUB7.6 billion of Tier 1 capital from VTB, which increased the majority shareholder's stake to 78% (year-end 2011: 74%). In the course of 2011, VTB provided RUB8.5 billion of subordinated capital to TransCreditBank, thereby improving its total capital ratio to 15% at year-end 2011, from 11% at year-end 2010. VTB has also provided funding to TransCreditBank in order to refinance its wholesale borrowings; parental funding accounted for 10% of non-equity funding at year-end 2011. In H2-2012, VTB expects to repurchase an additional stake from the state railroad monopoly Russian Railways (a former parent of TransCreditBank) and accumulate a 100% shareholding in TransCreditBank.
According to Moody's, the planned transfer of corporate business (if fulfilled according to current VTB plans) is unlikely to have negative rating implications for TransCreditBank's standalone credit profile.
While the planned transfer of the majority of the corporate loans (which formed 74% of gross loans at YE2011) to VTB during 2013 will be negative for TransCreditBank's franchise value, we expect that this will be balanced by a larger share of retail and SME clients. As a result, we expect that the bank's revenue streams will become more granular, and, together with the remaining treasury business, will be sufficient to generate satisfactory earnings in order to ensure adequate performance.
TransCreditBank's Baa3 Global Local Currency (GLC) deposit rating incorporates the following elements: (i) the bank's ba3 standalone credit assessment, and (ii) Moody's assessment of a very high probability of support from VTB in the event of need given the majority shareholder's 78% stake in TransCreditBank. Moody's also notes that TransCreditBank's strategic and operational management functions are becoming integrated with those of VTB, and operational management has almost reached an integration level consistent with other VTB subsidiaries.
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: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Headquartered in Moscow, Russia, TransCreditBank had total assets of approximately RUB506 billion (approximately USD16 billion) and equity of
RUB36 billion (approximately USD1 billion), according to the bank's audited IFRS financial report at year-end 2011. TransCreditBank's main focus is on servicing the needs of Russian Railways and its subsidiaries, and the location of the bank's branch network enables it to better provide services to its former parent's regional entities and their employees.
Company — TransCreditBank
Full nameTransCreditBank OJSC