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Outlook On Russia-Based OTKRITIE Bank Revised To Positive On Upcoming Merger; 'B+/B' Ratings Affirmed

August 01, 2014 | Standard & Poor's

MOSCOW (Standard & Poor's) July 31, 2014--Standard & Poor's Ratings Services said today it revised its outlook on Russia-based OTKRITIE Bank to positive from stable and affirmed the 'B+/B' long- and short-term counterparty credit ratings.

The outlook revision reflects that the bank will merge with its sister Bank of Khanty-Mansiysk (JSC) (BKM; BB-/Stable/B) in the next 12 months. We understand that OTKRITIE Bank will be fully integrated with BKM and cease to exist as a separate legal entity later in 2014. The post-merger enlarged entity will focus on small and retail business development while large and midsize corporate business will be transferred to the Bank Otkritie Financial Co. (Bank OFC, previously Nomos Bank, the majority owner of OTKRITIE Bank and BKM), which will develop commercial and investment banking operations.

The post-merger bank is likely to have around Russian ruble (RUB) 570 billion ($15.5 billion) in assets at the end of 2014, making it one of the top-15 banks in Russia. As it will represent around 40% of the Bank OFC group's consolidated assets, it may become more important for the group's strategy and lead us to treat the post-merger entity as a "core" subsidiary. We believe that the management and strategy of the post-merger entity will be even more integrated with those of the group than is currently the case, with key decision makers sharing responsibilities between the entity and the group. If we believe the enlarged entity is core to Bank OFC at the time of the merger we will likely raise our rating on OTKRITIE Bank to 'BB-', in line with the group credit profile, before the entity ceases to exist.

Our assessment of OTKRITIE Bank's stand-alone credit profile is unchanged at 'b+'. We currently classify the bank as a "highly strategically important" subsidiary of Bank OFC.

The positive outlook reflects our base-case scenario that the merger of OTKRITIE Bank with Bank of Khanty-Mansiysk to form the retail arm of Bank Otkritie Financial Corporation is progressing in line with our expectations, and that it will strengthen the current highly strategic status of OTKRITIE Bank for Bank Otkritie Financial Corporation. We might therefore increase the amount of support factored into the rating upon the merger.

We could take a positive rating action upon the merger if we believed that the post-merger entity would be classified as a core subsidiary of Bank OFC, whose group credit profile is 'bb-'. A core entity is typically rated at the level of the group credit profile.

We could take a negative rating action if Bank OFC's weaker-than-expected performance led us to revise down our assessment of the group credit profile. This could also lead us to lower the ratings on Bank OFC's subsidiaries, including OTKRITIE Bank. If the group changed its strategy with regard to the importance of its retail strategy, or the merger failed, this would likely eliminate the upside potential we currently factor into the rating.

Company: Bank OTKRITIE (doesn't exist)

Full company nameBank OTKRITIE
Country of riskRussia


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