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London - Moody's changes outlook to negative on Investment Trade Bank's B2 deposit ratings

October 26, 2012 Moody's Investors Service
London, 26 October 2012 -- Moody's Investors Service has today changed to
negative from stable the outlook on Investment Trade Bank's B2 long-term
local and foreign currency deposit ratings. The outlook on the bank's E+
bank financial strength rating (BFSR) remains stable. Investment Trade
Bank's Not Prime short-term local and foreign currency deposit ratings
were affirmed.

Please see ratings tab on the issuer/entity page on moodys.com for
information on the bank's National Scale Rating.


Today's rating announcement primarily reflects Investment Trade Bank's
significant single-name and single-industry credit exposures, weak
quality of the bank's loan book and low capitalisation levels coupled
with sizeable investments into properties.

Moody's notes that, according to Investment Trade Bank's 2011 IFRS
report, its top 14 borrowers accounted for 211% of the bank's total
equity at 1 January 2012, while its credit exposures to construction and
real-estate segments together stood at 124% of total equity as of the
same reporting date. Although the bank recorded moderate loan growth in
2012, its credit concentrations were virtually unchanged as at mid-2012,
according to the bank's management information. Moody's is also concerned
about the bank's asset quality metrics, with loans overdue by more than
90 days accounting for 5.4% of total gross loans at mid-2012. Although
this was fully covered by loan loss reserves of 7.79% (according to bank
data), restructured loans accounted for another 11.3% of total gross
loans at mid-2012. Therefore, the current provisioning level is
insufficient, as the risk of restructured loans slipping into the
non-performing loan category is high.

Moody's also notes that Investment Trade Bank's capitalisation does not
provide an adequate buffer to cope with the abovementioned asset-quality
issues. As at 1 October 2012, the bank's statutory N1 capital adequacy
(N1) ratio stood at 11.12%, just slightly above the regulatory minimum of
10%. Moreover, approximately 40% of the bank's equity remains tied up
with investments in non-core property, thus decreasing its
loss-absorption capacity. In October 2012, Investment Trade Bank's
shareholders launched a capital replenishment project, whereby (1) a
subordinated loan of RUB1 billion is expected to be converted to Tier 1
capital; and (2) shareholders provide an additional subordinated loan
amounting to RUB2 billion (the current shareholder structure is expected
to remain unchanged). However, Moody's notes the risks associated with
the timely completion of these measures, as the rating agency believes
the bank is already facing a capital deficit, particularly given its low
provisioning level.


An upgrade of Investment Trade Bank's deposit ratings is unlikely given
the negative outlook on these ratings. The ratings outlook could be
revised to stable following a material improvement in the bank's capital
level, and reductions in its non-core investments and currently high
credit concentrations. Simultaneously, the bank would need to demonstrate
a sustained track record of improving financial fundamentals.

Investment Trade Bank's ratings could be downgraded if the bank fails to
significantly improve its capital buffers in the short term and to
materially reduce its sizeable exposure to risky non-core investment
projects. Any material weakening of the bank's asset-quality metrics
and/or liquidity position may also lead to a downgrade of Investment
Trade Bank's deposit and debt ratings.
Company — Investtorgbank
  • Full name
    Joint-Stock Commercial Bank "Investment Trade Bank" (Open Joint-Stock Company)"
  • Registration country
  • Industry