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Moody's Interfax affirms rating of Russlavbank (Russia)

August 05, 2011 | Moody's Investors Service

Moscow, August 05, 2011 -- Moody's Interfax Rating Agency (MIRA) has today
affirmed the Baa2.ru long-term National Scale Rating (NSR) of Russlavbank
(RSB). The NSR carries no specific outlook.



MIRA's affirmation of RSB's ratings is based on the bank's audited
financial statements for 2010 prepared under IFRS, and its H1 2011
unaudited results prepared under local GAAP.



Please see ratings tab on the issuer/entity page on moodys.com for
information on Global Scale Rating.



RATINGS RATIONALE



According to MIRA, RSB's rating remains constrained by (i) the bank's
weak asset quality; (ii) the relatively high single-name concentration on
the both sides of the bank's balance sheet; (iii) the short-term nature
of the funding base; and (iv) its small size and narrow banking franchise.



MIRA also observes that the rating is underpinned by (i) RSB's good
position in the niche express cash transfer market which enables the bank
to generate solid recurring earnings, and (ii) the high level of liquid
assets, accounting for over 40% of the bank's total assets.



Although RSB accumulated significant loan loss reserves of 17% of gross
loans at YE2010, weak asset quality is the major challenge. The bank's 30
days past-due loans soared to 20% of gross loans at the same date, from
9% the previous year. Poor asset quality also weighs on RSB's
profitability which has declined significantly over the past three years.
Moreover, the level of single-name concentration remained relatively
high. The top-20 credit exposures accounted for 42% of the gross loan
portfolio, or exceeded 200% of its Tier 1 capital at YE2010, thus
exposing its earnings to potential volatility in case of credit stress.



MIRA views positively that RSB's solid recurring earnings (reported in
2010) were sufficient to cover an increased level of provisioning. The
rating agency notes the bank's good profitability metrics which are
driven by healthy net interest margin (7% in 2010) and fee-generating
capacity. RSB's proprietary 'CONTACT' money transfer system remains the
main source of the bank's fee and commission earnings, which, in turn,
comprised 44% of its operating revenues at YE2010. At the same time,
accrued losses from problem loans and shrinkage of interest-earning
assets have contributed to a worsening of RSB's net income.



Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are
intended as relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global scale
ratings in that they are not globally comparable with the full universe
of Moody's rated entities, but only with NSRs for other rated debt issues
and issuers within the same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".ru" for
Russia. For further information on Moody's approach to national scale
ratings, please refer to Moody's Rating Implementation Guidance published
in August 2010 entitled "Mapping Moody's National Scale Ratings to Global
Scale Ratings."



Company: Russlavbank

Full company name
Country of riskRussia
Country of registrationRussia
IndustryBanks

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