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International Bank of Saint-Petersburg Upgraded To \'B\' On Reduced Asset Quality Concerns; Outlook Stable

September 27, 2012 | Standard & Poor's

• We believe the risk position of the International Bank of Saint-Petersburg (IBSP) has improved following a reduction of concentrations in its loan portfolio and lending to related parties.
• At the same time, the bank\'s reserve coverage remains at a very high level.
• We are raising our long-term ratings on IBSP to \'B\' from \'B-\' and affirming the \'C\' short-term ratings. We are also raising our Russian national scale rating on the bank to \'ruBBB+\' from \'ruBBB\'.
• The stable outlook reflects the balance between our anticipation of IBSP\'s limited appetite for lending growth and established corporate banking franchise in the St. Petersburg region against its persistently weak capitalization.

MOSCOW (Standard & Poor\'s) Sept. 27, 2012--Standard & Poor\'s Ratings Services said today it had raised its long-term issuer credit ratings on (IBSP) to \'B\' from \'B-\' and affirmed its short-term ratings at \'C\'. We also have raised our national scale rating to \'ruBBB+\' from \'ruBBB\'. The outlook is stable.

The upgrade reflects Standard & Poor\'s view of a gradual improvement in IBSP\'s risk profile. The 20 largest borrowers represented about 4x adjusted total equity as of June 30, 2012, down from 5x in 2011, but we still consider this a weakness to the rating. In addition, related-party lending decreased to about 5% as of June 30, 2012, with IBSP\'s divestment of Interleasing in February this year, from a high 20% as of year-end 2011. We have therefore revised our risk position assessment to \"moderate\" from \"weak\", as defined in our criteria, since the bank\'s risk metrics are gradually converging toward the system average.

In addition, we continue to believe that the bank\'s loan loss experience is better than the system average, due to its selective underwriting approach in targeting borrowers from the less risky public sector. At the same time, IBSP\'s loan loss provisions are at the higher end of the average for the banking system at 8.95% of total loans as of June 30, 2012. Reserves cover nonperforming loans by more than 4.5x, providing the bank with a substantial cushion to absorb potential deterioration of the quality of its loan book, which we do not expect, however.

Despite these positive developments, we acknowledge that the top 20 loans are very concentrated at 50% of total loans, which is higher than peers\'. The amount of restructured loans is also high at about 20% of the loan portfolio.

In addition to a \"moderate\" risk position, our ratings on IBSP reflect the \'bb\' anchor for a commercial bank operating only in Russia and our view of the bank\'s \"moderate\" business position, \"weak\" capital and earnings, \"average\" funding, and \"adequate\" liquidity. The stand-alone credit profile (SACP) is \'b\'.

The stable outlook reflects the balance between our anticipation of IBSP\'s limited appetite for lending growth and established corporate banking franchise in the northwest region of Russia against its persistently weak capitalization. This includes our expectation of continued pressure on interest margins and stable asset quality.

The probability of positive rating actions in the near future is low. However, we could raise the ratings if IBSP\'s capital adequacy improved significantly, notably because of higher earnings generation or capital increases by the owners, which may raise our projected risk-adjusted capital (RAC) ratio (before adjustments for diversification) sustainably higher than 5%.

We would consider a negative rating if the improvements we have observed in IBSP\'s risk position reversed, with rising concentrations in the loan portfolio, significantly deteriorating credit quality, or higher credit costs than the market average. If the bank were unable to match retained earnings with the growth in risk-weighted assets, the RAC ratio may fall below 3% and this would likely lead to a downgrade. However considering recent positive trends in capitalization, we see this scenario as unlikely.

Company: IBSP

Full company nameInternational Bank of Saint Petersburg
Country of riskRussia
Country of registrationRussia


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