S&P affirms VTB Bank and subsidiaries ratings; outlook Negative
07.07.11 16:00
/Standard & Poor's, Paris, July 6, 11, heading by KASE/ - Standard & Poor's
Ratings Services today commented on its CreditWatch placement of Russian bank
JSC VTB Bank (VTB) and subsidiaries. The 'BBB' long-term counterparty credit
ratings on VTB and its subsidiaries VTB-Leasing and VTB-Leasing Finance remain
on CreditWatch, where we placed them with negative implications on March 1,
2011. We are also maintaining the 'ruAAA' Russia national scale ratings on VTB
and VTB-Leasing on CreditWatch with negative implications. At the same time, we
affirmed the 'A-3' short-term ratings on VTB and VTB-Leasing.
The Central Bank of Russia (CBR) and Deposit Insurance Agency (DIA) announced a
rehabilitation plan on July 1, 2011, to prevent OAO Bank of Moscow's
(BoM; not rated) bankruptcy. In the first quarter, VTB purchased, for RUB
(Russian ruble) 103 billion, a 46.5% direct stake in BoM and 25% plus one share
of Metroplitan Insurance Group (not rated), which itself owns 17.3% in BoM. We
placed the long-term ratings on VTB on CreditWatch negative at that time to take
into account the potential negative impact on VTB's capital, uncertainties about
BoM's asset quality, and the risks of integrating BoM into the VTB group.
The CBR's recent negative revelations about BoM have prompted us to extend our
CreditWatch placement. The central bank's announcements indicate fraudulent
activities and potential losses that might be large enough to make BoM unable to
meet minimum regulatory capital requirements. In broad lines, the announced
rehabilitation plan calls for the CBR to make a five-year deposit of RUB295
billion ($10 billion) with an annual interest rate of 0.5%, below the market
rate, in the DIA. Concurrently, the DIA is to deposit the same amount at an
interest rate of 0.51% in BoM for 10 years. VTB has announced that BoM will
invest the proceeds in Russian government bonds and that BoM will be able to
"book a profit with an economic effect of RUB150 billion." As part of the plan,
VTB has stated it will commit to provide BoM additional capital of up to RUB100
billion by year-end 2012.
The DIA has named two VTB group members--VTB Pension Administrator and VTB Debt
Center--as administrators of BoM during the rehabilitation. Under the rules of
the rehabilitation, the administrators must have a minimum 75% shareholding in
BoM. Consequently, VTB intends to increase its stake in BoM to at least 75% over
the coming weeks.
While the rehabilitation plan demonstrates significant support for BoM from the
government via the DIA, it also means that VTB is increasing its ownership in a
large bank with a much higher concentration of impaired loans than originally
anticipated. In our opinion, the recent events surrounding BoM illustrate
lingering asset quality problems from the 2009 recession and gaps in the
supervision of large financial institutions in Russia.
We believe that the integration of BoM, the fifth-largest bank in Russia, will
strengthen VTB's business position in the Moscow region, the country's
wealthiest economic area. BoM has 9 million retail customers and a large base of
corporate and institutional clients including the City of Moscow. Still, the
acquisition of BoM, combined with the less material purchase of TransCreditBank
(BB/Stable/B; ruAA) in 2011, will weaken VTB's capital, in our view. The
integration of BoM within VTB group also carries execution risks.
Under our methodology, VTB is a government-related entity (GRE). In our opinion,
the probability that the Russian government would provide timely and sufficient
extraordinary support to VTB in case of need is extremely high, due to VTB's
critical role and very strong link to the Russian government. Consequently,
VTB's long-term rating incorporates four notches of uplift above its stand-alone
credit profile, which we assess at 'bb-'.
We will resolve the CreditWatch in the coming weeks after we review BoM's loan
portfolio, VTB's plans to integrate BoM, and VTB's capital management in light
of the rehabilitation plan for BoM. At this stage, if we were to lower the
long-term ratings on VTB and its subsidiaries following our review, we would
likely lower them by no more than one notch.
Analysts' contacts:
Scott Bugie, Paris, 33 (1) 44-20-66-80
scott_bugie@standardandpoors.com
Maria Malyukova, Moscow, 7 (495) 783-41-35
Maria_Malyukova@standardandpoors.com
FIG_Europe@standardandpoors.com
[2011-07-07]