January 22, 2008 | Cbonds
|Fitch Ratings has today affirmed the ratings of Russia’s Investsberbank (OAO) (ISB) at Long-term Issuer Default (IDR) 'BBB-' (BBB minus), Short-term foreign currency IDR 'F3', Individual 'D/E', Support '2' and National Long-term ‘AA+(rus)’. The Outlooks for the Long-term IDR and National Long-term rating are Stable. |
The IDRs, Support and National Long-term ratings of ISB are driven by the high potential for support, in case of need, from Hungary's largest bank, OTP Bank (OTP, Support '2'), which since end-2006 has been ISB's major shareholder.
The Individual rating reflects ISB's small size by international standards, risks stemming from the rapid growth of its unsecured retail exposure and deteriorating asset quality, which to date has been mitigated by its high margins. It also reflects the bank's increased exposure to market and operational risk, modest capitalisation and the still challenging operating environment. In addition, the Individual rating takes into account the bank's growing franchise, as a result of organic development and mergers, as well as improved corporate governance.
Any future movement in the bank's Long-term IDR will likely depend on the financial position of OTP. Downward pressure on the Individual rating could result primarily from further deterioration of asset quality as the loan book seasons following rapid loan growth. Improvements in asset quality and earnings generation would be positive for ISB's stand-alone credit profile, as would a strengthening of capitalisation and liquidity and reduction of credit risk in ISB’s substantial holdings of Russian bank debt instruments.
ISB’s net interest margin is solid due to the large proportion of high-yield consumer lending. However, bottom-line profitability is modest due to expansion-related expenditure and high provisioning charges, which are likely to persist in the medium term. Reported asset quality deteriorated in 9M07, in part due to the fact that loan write-offs have been negligible; however, the latter are expected to increase in the future. ISB’s corporate debt securities portfolio, equal to 1.3 times equity at end-Q307, is highly concentrated on the banking industry and consists primarily of instruments not eligible for refinancing with the CBR. Liquidity is highly dependent on the stability of retail accounts, although could be supported by OTP in case of need. Capital adequacy has come under pressure from rapid asset growth and, in 2007, ISB was able to meet regulatory requirements only as a result of subordinated debt provided by OTP. To support continued growth, OTP plans to contribute RUR4.2bn of new capital in Q208, equal to 73% of end-Q307 IFRS equity. OTP is currently considering further bank acquisitions in Russian regions, following the purchase of the small Donskoy Narodniy Bank in November, 2007; these may be positive for ISB’s franchise, but would elevate operational risks and, if substantial, could significantly impact the composition of ISB’s loan portfolio, funding profile and capitalisation levels.
ISB is a medium-sized Russian bank and assumed its present form during 2005/6 as a result of the merger of four domestic banks, including two in the Russian regions, under the Investsberbank brand. With total consolidated assets of USD2.1bn, ISB was the 41st-largest Russian bank at end-9M07. OTP currently holds a 96.4% stake.
Company: OTP Bank
|Full company name||Open Joint Stock Company «OTP Bank»|
|Country of risk||Russia|
|Country of registration||Russia|