June 30, 2011 |
|Fitch Ratings-London/Moscow-29 June 2011: Fitch Ratings has upgraded Dalcombank's (DCB) Individual Rating to 'D/E' from 'E'. All DCB's other ratings are unaffected. A list of ratings is at the end of this comment. |
The upgrade of DCB's Individual Rating largely reflects the bank's improved capitalisation after a significant RUB1bn equity injection (equal to 72% of pre-injection equity) received from JSFC Sistema ('BB-'/Positive) in June 2011, as well as an improvement in the operating environment that should ease asset quality pressure and thus support DCB's profitability. However, the Individual Rating is constrained by limited internal capital generation due to significant credit costs and relatively low operating efficiency.
Following the recent capital injection, regulatory total capital adequacy ratio increased to 15.8% from a modest 10.3% at end-5M11. The resulting loss absorption capacity of 14.4% exceeds both loans overdue more than 90 days (9.5% of gross loans) and rolled-over exposures (1.7%). However, credit costs remain high, with loan impairment charges absorbing almost 91% of 2010 pre-impairment operating profit under IFRS.
Liquidity could be vulnerable given DCB's significant reliance on retail deposits (76% of total liabilities at end-Q111). Highly liquid assets (defined as cash, securities repoable with Central Bank of Russia and short-term interbank placements) were an adequate 24% of total assets at end-Q111. Given the somewhat long-term nature of the loan book, the bank will probably need to keep a significant liquidity cushion, which will weigh on profitability.
DCB is a small-sized bank operating primarily in the far eastern regions of Russia. It focuses on lending to SMEs and retail customers. JSFC Sistema owns almost 25% of DCB directly and is also the majority shareholder of Moscow Bank for Reconstruction and Development ('B+'/ Positive), which in turn owns 75% of DCB.
Long-term foreign currency IDR: 'B+', Outlook Positive; unaffected
Short-term IDR: 'B'; unaffected
Individual Rating: upgraded to 'D/E' from 'E'
Support Rating: '4'; unaffected
National Long-term rating: 'A-(rus)', Outlook Positive; unaffected
|Full company name|
|Country of risk||Russia|
|Country of registration||Russia|