July 19, 2011 |
|MOSCOW (Standard & Poor's) July 19, 2011--Standard & Poor's Ratings Services said today that it had assigned its 'B-/C' long- and short-term counterparty credit ratings and 'ruBBB+' Russia national scale rating to Russia-based OTKRITIE Bank. The outlook is positive.|
The ratings reflect the risks of integrating the bank's recently-acquired component banks, its untested credit risk management, poor earnings, and moderate capitalization due to double leverage at the parent level. Mitigating factors include adequate liquidity and the support of the Russian Deposit Insurance Agency (DIA, not rated). The ratings reflect OTKRITIE's stand-alone credit profile and do not include any uplift for extraordinary support. The bank's holding company, OTKRITIE Financial Corp. (not rated), holds a 67% stake. Other shareholders include the DIA (17%) and International Finance Corp. (AAA/Stable/A-1+) (16%).
In 2008 and 2009, OTRKITIE Financial Corp. acquired stakes in two banks as part of a financial rehabilitation program: Russian Development Bank (RDB; not rated) and Bank Petrovskiy (Petrovskiy, not rated). OTKRITIE Financial Corp. consolidated the two banks with its own smaller banking business. In July 2011, OTKRITIE will acquire Sverdlovskiy Gubernskiy Bank (SGB, not rated), another bank under DIA administration. SGB's total assets at year-end 2010 equated to about 12% of OTKRITIE's total assets of Russian ruble 133.7 billion ($4.4 billion) at the same date. OTKRITIE, which will focus on commercial banking with individuals and small and midsize businesses, now ranks among the 30 largest Russian banks.
OTKRITIE's loan book is relatively clean because the DIA took on impaired loans from RDB and Petrovskiy prior to the sale of the two banks to OTKRITIE. The bank's gross nonperforming assets (excluding restructured loans) stood at 5.3% of total loans as of year-end 2010. Single-name concentrations, particularly to constructions projects, are high. The largest 10 borrowers accounted for 27% of loans and 109% of equity at year-end 2010. In line with a directive from International Finance Corp., OTKRITIE significantly reduced loans to related parties in 2010. We positively assess a move by the bank towards better risk-management practices. However, due to the particular history of its creation, we view OTKRITIE's underwriting skills as untested.
OTKRITIE is mostly funded by corporate and retail clients with both current and term accounts; its loan-to-deposit ratio was 66% at year-end 2010. However, the bank has single-source funding concentrations. Cash and money market instruments totalled 25% of assets at the end of 2010. OTKRITIE's risk-adjusted capital (RAC) ratio was 7% at year-end 2010. The bank's poor earnings in recent years have left little room for internal capital generation. In our opinion, the fact that OTKRITIE Financial Corp. financed a part of its investment in OTKRITIE with debt creates double leverage and weakens the overall capital position at a group level.
Over the medium term, OTKRITIE intends to complete its operational integration, and further improve its risk management and corporate governance practices. We believe that the bank will likely succeed, although the challenge is significant.
Company: Bank OTKRITIE (doesn't exist)
|Full company name||Bank OTKRITIE|
|Country of risk||Russia|