Fitch affirms Subsidiary Bank Sberbank of Russia and Subsidiary Organization JSC VTB Bank (Kazakhstan) ratings
24.01.13 15:37
/Fitch Ratings, Moscow, January 23, 13, heading by KASE/ - Fitch Ratings has
affirmed Kazakstan's Subsidiary Bank Sberbank of Russia OJSC's (SBK) and VTB
Bank (Kazakhstan)'s (VTBK) Long-term foreign-currency Issuer Default Ratings
(IDRs) at 'BBB-'. The Outlook on SBK's IDR is Stable. Fitch has revised the
Outlook on VTBK's IDR to Negative from Stable. A full list of rating actions is at
the end of this commentary.
RATING RATIONALE, DRIVERS AND SENSITIVITIES - IDRS, DEBT RATINGS,
NATIONAL RATINGS, SUPPORT RATINGS
SBK's and VTBK's IDRs are based on the high probability of support from the banks'
respective owners, Sberbank of Russia (Sberbank, 'BBB'/Stable) and Bank VTB
(JSC) (VTB, 'BBB'/Negative), if needed. The parent institutions' propensity to
support their Kazakh subsidiaries would likely be high, in Fitch's view, given the
full ownership, the strategic importance for Sberbank and VTB of their expansions
in the CIS region and internationally, the moderate cost of any potential support,
common branding and significant potential reputational risks arising from a
subsidiary default, Sberbank's and VTB's strong track record to date of supporting
their subsidiaries, including SBK and VTBK, and the solid government relations of
Russia and Kazakhstan.
The one-notch differential between the parents' IDRs and the respective subsidiary
banks reflects the cross-border ownership, the limited importance of the
subsidiaries due to their still small size relative to the parents' consolidated
balance sheets, the significant operational independence of the Kazakh
subsidiaries, and that the non- Russian operations of the two groups have yet to
demonstrate their strong commercial viability (particularly relevant for VTBK).
The Outlooks on the subsidiaries reflect those on the parent banks. The revision
of the Outlook on VTBK's IDR follows the revision of VTB's Outlook on 16 January
2013 (see 'Fitch Revises Outlook on VTB to Negative, Affirms Sberbank and VEB at
BBB'' at www.fitchratings.com).
SBK and VTBK's IDRs are likely to move in tandem with the IDRs of Sberbank and
VTB,
RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES - VIABILITY
RATINGS
The upgrade of SBK's Viability Rating (VR) to 'b+' from 'b' reflects the bank's
recently strengthened domestic franchise, its track record of profitable
operations, strong reported credit metrics, and the ordinary benefits of support,
including reasonable capitalisation maintained through timely and solid capital
injections by the parent. At the same time, SBK's VR also considers its exposure
to some high risk larger borrowers, and the recent rapid business growth (47%
gross loan growth for 2012), which may result in asset quality deterioration as
the loan book seasons.
SBK compares well with large Kazakh banks in terms of reported non-performing
loans (NPLs; more than 90 days overdue). At end-2012, NPLs were a low 1.1% of the
portfolio with no material concentration of poor quality loans among the largest
(top 25) exposures. NPLs originated during 2012 were only 0.2% of average
performing loans, although the ratio should be viewed in light of rapid growth and
the largely unseasoned portfolio.
SBK reported a reasonable 15.6% regulatory total capital adequacy ratio at 1
December 2012, supported by a material KZT15bn equity injection from Sberbank
and KZT18bn profit (representing an annualisedreturn on average equity of 36%) in
9M12.
SBK funds itself domestically, for the most part, with the loans/deposits ratio
standing at 95% at end-Q312, although deposit concentrations are high.
SBK is the sixth-largest bank in Kazakhstan, focusing primarily on corporate
business. Sberbank currently owns virtually 100% of SBK.
An upgrade of SBK's VR would require further strengthening of its domestic
franchise while maintaining healthy capital generation and asset quality. A sharp
deterioration in asset quality and loss absorption capacity could lead to a
downgrade.
Fitch has not assigned a VR to VTBK due to the bank's still modest track record of
operations and, hence, continued reliance on capital support from its parent.
VTBK's local franchise remains very limited (less than 1% market share by assets
at end- 2012) despite the fast loan growth from a low base since the bank was
established in 2009.
VTBK's reliance on parent funding is currently moderate (9% of KZT79bn total
liabilities at end-2012), but might increase in future to fuel further growth of
the bank. Based on the draft IFRS accounts, VTBK will likely continue to be loss
making in 2012, but might report positive net profit in 2013 if asset quality
metrics remain stable.
Due to the fast growth and continued losses, capital ratios have moderated. There
were no capital injections in 2012. As a result, the local statutory Tier I
capital adequacy ratio fell to 17% at end-2012 (minimum required is 5%) from 28%
at end- 2011. There are no defined capital injection plans for 2013, but Fitch
notes that past capital support has been timely and sufficient.
VTBK, established in 2009, is currently the 20th-largest bank in Kazakhstan
targeting predominantly corporate commercial banking business.
The rating actions are as follows:
SBK:
Long-Term foreign currency IDR: affirmed at 'BBB-'; Outlook Stable
Long-Term local currency IDR: affirmed at 'BBB-'; Outlook Stable
Short-Term foreign currency IDR: affirmed at 'F3'
Viability Rating: upgraded to 'b+' from 'b'
Support Rating: affirmed at '2'
National Long-Term Rating: affirmed at 'AA(kaz)'; Outlook Stable
Senior unsecured debt rating: affirmed at 'BBB-'(EXP)
Senior unsecured debt national rating: affirmed at 'AA(kaz)(EXP)'
Subordinated debt rating: affirmed at 'BB+'
Subordinated debt National Rating: affirmed at 'AA-(kaz)'.
VTBK:
Long-Term foreign currency IDR: affirmed at 'BBB-'; Outlook Revised to Negative
from Stable
Short-Term foreign currency IDR: affirmed at 'F3'
Long-Term local currency IDR: affirmed at 'BBB-'; Outlook Revised to Negative from
Stable
Support Rating: affirmed at '2'
National Rating: affirmed at 'AA(kaz)'; Outlook Revised to Negative from Stable
Senior unsecured debt rating: affirmed at 'BBB-'
Senior unsecured debt national rating: affirmed at 'AA(kaz)'.
Contacts:
Primary Analyst (VTBK), Roman Kornev, Associate Director +7 495 956 7016
Primary Analyst (SBK), Aslan Tavitov, Associate Director +7 495 956 7065
Secondary Analyst (VTBK), Aslan Tavitov, Associate Director +7 495 956 7065
Secondary Analyst (SBK), Roman Kornev, Associate Director +7 495 956 7016
Committee Chairperson, James Watson, Managing Director +7 495 956 6657
[2013-01-24]