Fitch Places Bank Kedr on Rating Watch Negative
December 3, 2014 Fitch Ratings
Fitch Ratings-Moscow/London-03 December 2014: Fitch Ratings has placed Russia-based JSC CB Kedr's 'B-' Long-term Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN). A full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, VIABILITY RATING (VR) AND NATIONAL RATING
The RWN follows the recent announcement by the Central Bank of Russia (CBR) on the application of financial rehabilitation measures with respect to Bank Rost and four other banks controlled by Rost or its ultimate shareholders, including Kedr.
The RWN reflects the risk that some of the bank's creditors may suffer losses and/or temporary loss of access to funds as a result of the rehabilitation measures. The RWN also reflects the risk that Kedr's solvency position may have weakened further since Fitch downgraded the bank to B-/Negative in October 2014 (see 'Fitch Downgrades Kedr to 'B-'; Outlook Negative' on www.fitchratings.com) as a result of either realisation of contingent risks from Bank Rost or potential additional asset quality problems identified by the Deposit Insurance Agency (DIA) during its recent assessment of the group.
At the same time, Fitch recognises that most Russian banks which have been subject to financial rehabilitation measures in recent years have not imposed losses on senior creditors, and also notes the statement by the DIA (which has been appointed as temporary administrator for the Rost group banks) that the banks are continuing to operate as normal.
According to Russian law, financial rehabilitation is aimed at preventing bank bankruptcy. However, it does not represent a commitment by the authorities to provide any financial assistance to the bank to help it meet all of its financial obligations. Financial rehabilitation may involve, at the DIA's discretion, different forms of bank liabilities being restructured and/or written down, potentially leading to creditor losses, which would be commensurate with Fitch's definition of default.
In practice, the DIA has usually provided significant amounts of liquidity and capital to banks under financial rehabilitation. Since 2008, the DIA has administered 28 banks with senior creditors suffering write downs in only a few cases. The DIA has the capacity to provide financial assistance, given its net liquid assets of RUB75bn, which are sizable relative to the Rost group's total liabilities of RUB104bn (of which RUB24bn is at Kedr) at end-October 2014.
Kedr's standalone liquidity is potentially vulnerable, in Fitch's view, based on the bank's highly liquid assets (excluding RUB1bn of related-party bank placements) amounting to a moderate 16% of customer deposits at end-October 2014. Customer deposits comprised 97% of Kedr's liabilities and retail deposits made up 86% of total deposits. The regulatory core Tier I and total capital ratios were a low 6.4% and 11.4%, respectively, at end-October 2014, and the authorities have so far not publicly stated whether any capital support and/or regulatory forbearance for Kedr is possible.
RATING SENSITIVITIES - IDRS, VIABILITY RATING (VR) AND NATIONAL LONG-TERM RATING
The ratings could be downgraded if (i) the DIA indicates that senior creditors may need to absorb losses in order to help restore the bank's solvency; or (ii) the bank's capitalisation or liquidity deteriorates significantly without any commitment of support from the DIA. The ratings could be affirmed if the DIA indicates that the financial rehabilitation of the group will not involve losses being imposed on Kedr's creditors.
KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)
Kedr's SR of '5' and SRF of 'No Floor' reflect the bank's small market shares and are unaffected by the rating actions. The ratings could be upgraded if the DIA provides tangible support to the bank, assumes ownership and makes a commitment to remain the bank's major shareholder over the medium term. The SR could also be upgraded if the DIA organises a takeover of Kedr by a stronger Russian bank.
The rating actions are as follows:
Long-term foreign and local currency IDR: 'B-'; placed on RWN
Short-term foreign currency IDR: 'B'; placed on RWN
National Long-term Rating: 'BB-(rus)'; placed on RWN
Viability Rating: 'b-'; placed on RWN
Support Rating: '5'; unaffected
Support Rating Floor: 'NF'; unaffected
Company — Kedr Commercial Bank
Full nameKEDR Public Joint-Stock Company Commercial Bank