Fitch Affirms Uraltransbank at 'B-'
July 11, 2014 Fitch Ratings
10 July 2014: Fitch Ratings has affirmed Russia-based Uraltransbank's (UTB) Long-term Issuer Default Rating (IDR) at 'B-' with Stable Outlook.
UTB's ratings reflect the bank's weak asset quality, narrow franchise and moderate capitalisation. At the same time the ratings reflect adequate pre-impairment profitability and currently comfortable liquidity position.
Asset quality risks stem less from high non-performing loans (NPLs; more 90 days overdue), which are fully reserved, than from weakly provisioned restructured loans. The former accounted for 13.8% of gross loans at end-2013, while a further 7.3% of bad loans were transferred to debt collection companies with the bank retaining credit risk. Both categories were fully covered by loan impairment reserves which equaled 22% of total loans. However, restructured loans, which would otherwise be NPLs, accounted for another 14.7% of loans and were weakly reserved.
Fitch Core Capital (FCC) ratio stood at a reasonable 15.2% at end-2013, but regulatory Tier 1 ratio was much tighter at 7.4% at end-4M14, mainly because the former includes property revaluation reserves, and due to a larger operational risk component under regulatory rules. Total regulatory capital ratio was 14.1% at end-4M14, allowing the bank to increase impairment reserves by only 4% (up to a maximum 19%) before breaching the minimum required 10% capital ratio which is a small buffer for the bank's high restructured loans.
Pre-impairment profit was reasonable at 5.4% of average gross loans in 2013, offering additional loss absorption capacity. However, this was insufficient to cover impairment charges in 2013, leading to moderate bottom-line losses. The bank also showed a small loss in 5M14 regulatory accounts.
UTB's liquidity is comfortable with liquid assets covering 40% of total customer accounts (main source of funding representing 95% of total liabilities) at end-4M14.
UTB's ratings could be downgraded if asset quality and capital come under greater pressure. Upside potential is currently limited taking into account the narrow franchise and weak asset quality.
Company — Uraltransbank