Actions follow the downgrade of the parent bank's ratings
Milan, June 06, 2012 -- Moody's Investors Service has taken the following actions on Raiffeisen Bank International (RBI) subsidiaries:
- Downgraded by one notch the deposit ratings of Tatra Banka a.s. (Tatra) in Slovakia to A3/Prime-2, and confirmed the standalone bank financial strength rating (BFSR) of C- (mapping to a standalone credit assessment of baa2), with negative outlook. The downgrade reflects the reduced capacity of the parent, RBI, whose ratings were recently downgraded by one notch (deposits A2, stable; BFSR D+/ BCA ba1, stable), to provide support.
- Downgraded by one notch the deposit ratings of Raiffeisen Bank SA in Romania to Ba1/Not-Prime and the standalone BFSR to D- (mapping to a standalone credit assessment of ba3), with stable outlook. The downgrade reflects the impact of the deterioration of the operating environment in Romania, as reflected in a lower standalone BFSR for the bank. Parental support uplift of two notches in the deposit ratings is maintained, reflecting the RBI's relatively stronger credit profile from which support can be deployed.
- Confirmed the deposit and debt ratings of ZAO Raiffeisenbank in Russia at Baa3/Prime-3, and affirmed the standalone BFSR at D+ (now mapping to a standalone credit assessment of baa3 from ba1 previously), with stable outlook. The confirmation reflects its strong performance, as well as its relative resilience from potential pressures stemming from the parent.
- Downgraded by two notches the deposit and debt ratings of Raiffeisen Bank Aval in Ukraine to Ba3, with a negative outlook, lowered the standalone BFSR to E+ (mapping to a standalone credit assessment of b2), and downgraded the national scale ratings of Raiffeisen Leasing Aval (a fully-consolidated subsidiary of Raiffeisen Bank Aval) in Ukraine to Aa2.ua from Aa1.ua. The rating actions on Raiffeisen Bank Aval reflect the parent RBI's reduced capacity to provide support to the Ukrainian entity, combined with its significant exposure to Ukrainian sovereign risk, which is rated B2 with a negative outlook. The rating action on Raiffeisen Leasing Aval reflects a similar action on its parent.
These actions follow Moody's recent decision to downgrade these banks' parent, RBI. For further details on the RBI downgrade, please see http://www.moodys.com/research/Moodys-downgrades-Austrian-banks-ratings-carry-stable-or-negative-outlooks--PR_247329 published on 6 June 2012.
Today's rating actions on Tatra (Slovakia), Raiffeisen Bank (Romania) and ZAO Raiffeisenbank (Russia) conclude the reviews Moody's initiated on 21 February 2012, which were based on concerns deriving from the pressure facing the parent banking group RBI, as well as on standalone considerations for the subsidiaries with respect to their own markets.
Today's rating actions on Raiffeisen Bank Aval and Raiffeisen Leasing Aval (Ukraine) conclude the reviews that Moody's initiated on 21 February 2012 and on 5 April 2012, which were based on concerns deriving from the level of default correlation between Raiffeisen Bank Aval and the Ukrainian sovereign, as well as the negative effects on the banks' credit profile stemming from the challenges facing their parent.
A full list of affected ratings is provided at the end of the press release. For additional information on bank ratings, please refer to the webpage containing Moody's related announcements http://www.moodys.com/bankratings2012.
TATRA BANKA (SLOVAKIA)
--- WEAKENING CAPACITY OF THE PARENT BANK TO PROVIDE SUPPORT
Moody's says that the lowering to ba1 of the standalone credit assessment of Tatra's parent, RBI, has caused the downgrade of the bank's deposit ratings to A3/Prime-2 from A2/Prime-1, with a negative outlook, given that the deposit ratings of Tatra incorporated uplift from parental support. In addition, Moody's confirmed the standalone BFSR of Tatra at C- (mapping to baa2), with a negative outlook.
--- UNCERTAIN OPERATING ENVIRONMENT IN SLOVAKIA
The negative outlook assigned to Tatra's C- BFSR and to the long-term deposit ratings reflects Moody's expectation that the bank's profitability and asset quality may be affected by the increasingly uncertain operating environment in Slovakia, amidst the broader European Union economic slowdown which affects the country mainly through its large dependence on external demand. Moody's expects Slovakia's GDP growth to decelerate to about 1.7% for 2012, down from 3.1% in 2011 and 4% in 2010.
Despite Tatra's return to adequate profits in the last two years, Moody's believes that the weakening operating environment will affect the bank's profitability, through: (i) a slowdown in lending growth; (ii) a likely increase in loan-loss charges, compared to 2010 and 2011; (iii) the payment of a new bank tax, which will be levied by the government for the first time in 2012; and (iv) pressures on interest margins.
In addition, the bank shows some further vulnerability to the difficult operating environment given its significant activity in corporate lending which accounts for about 60% of the bank's loan book (with a significant exposure to the commercial real-estate segment), combined with significant corporate borrower concentrations.
The standalone BFSR of C-/baa2, with a negative outlook, also reflects Tatra's resilient franchise in Slovakia as the third largest bank, with market shares of around 17% in loans and deposits. In addition, the bank's currently satisfactory profitability and adequate funding profile, based largely on customer deposits, underpin the current rating. Finally, Moody's believe that Tatra is relatively well insulated from the pressures experienced by its parent, which is now rated two notches lower on a standalone basis, ba1 compared to baa2 for Tatra.
Tatra's deposit ratings continue to benefit from a two-notch rating uplift from systemic support, reflecting the very high probability of support from the Slovak government, in case of need.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Any upward movement on the ratings depend on material improvement in the European operating environment and a consequent easing of pressures on the bank and its parent. In addition, significant downwards pressure on Slovakia's government debt ratings could affect Tatra's deposit ratings.
A sustained reduction in borrower concentration, improvement in asset quality, and resilient profitability and liquidity could exert upward pressure on the standalone rating of the bank.
RAIFFEISEN BANK (ROMANIA)
--- INCREASINGLY CHALLENGING OPERATING ENVIRONMENT IN ROMANIA
Moody's says that the increasing challenges posed by the Romanian operating environment have reduced the creditworthiness of Raiffeisen Bank SA, reflected by the one-notch downgrade of standalone BFSR to D-/ba3, with a stable outlook, from D/ba2, and of its deposits ratings to Ba1/Not-Prime from Baa3/Prime-3.
Given Romania's high dependence on external markets, particularly in terms of exports and private sector capital inflows, the increasing pressure from euro area countries is dragging on Romania's economic performance. In the last quarter of 2011 and in the first quarter of 2012 Romania experienced a mild GDP contraction quarter-on-quarter. Private consumption remains subdued, and unemployment is rising. Although economic growth should improve in the coming years, this will likely remain well below the 2008 pre-crisis levels (about 6% GDP growth per annum), thus making income convergence with core Europe more challenging, given the significant disparity in household income, at 64% below the EU27 average. The macroeconomic weaknesses affect banking sector performance through weak credit demand, lower revenues and asset-quality pressures.
For Raiffeisen Bank SA, Moody's is particularly concerned about potential asset quality pressure that could stem from a partially unseasoned loan book, following rapid loan growth of around 17% per year in the past two years, in the context of a general stagnation within the domestic banking system. The bank's relatively high corporate borrower concentration intensifies the risks associated with rapid loan growth. In addition, given the risks associated with the euro area, Moody's views the bank's capitalisation as providing only a limited cushion against possible stress scenarios. This exposure to external shocks is further exacerbated by the significant amount of foreign-currency loans granted by the bank, currently at 44% of gross loans, mainly Euro-denominated.
Moody's also acknowledges that Raiffeisen Bank SA benefits from a relatively good franchise as a second tier bank in Romania, with market shares of 6.5% in loans and 8.4% in deposits, with an extensive distribution network and well recognised brand name. In addition, the bank currently reports good profitability and a satisfactory funding profile based largely on customer deposits denominated both in local and foreign currencies. These factors combined with Moody's view of the strategic importance of the subsidiary within the RBI group, currently result in a two-notch rating uplift for the bank's deposit rating, from Moody's parental support assumptions and underpin the stable outlook on the bank's ratings.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Any upward movement of the standalone rating depends on sustainable improvements in the operating environment in Romania, a further strengthening of the bank's franchise and significantly improved financial fundamentals.
Further downgrades of either the standalone ratings or the deposit ratings would likely stem from a severe deterioration in the bank's asset quality, profitability and capitalisation as a result of the challenging macro-economic environment in Romania. A downgrade of the bank's deposit ratings could also occur if RBI's ratings were downgraded further.
ZAO RAIFFEISENBANK (RUSSIA)
--- IMPROVEMENT IN STANDALONE CREDIT PROFILE
Moody's has confirmed ZAO Raiffeisenbank's debt and deposit ratings of Baa3/Prime-3 and affirmed the D+ BFSR (now mapping to a standalone credit assessment of baa3 from ba1). The strengthening of the bank's standalone credit assessment to baa3 from ba1 effectively neutralised the reduction in debt and deposit rating uplift from parental support following the downgrade of RBI.
Moody's recognises the bank's decreased reliance on wholesale funding sources; the bank's local customer deposit base accounted for 79.4% of its total liabilities as at end-March 2012 compared with 67.9% at year-end 2010. ZAO Raiffeisenbank also has been able to sustain one of the lowest funding costs among its Russian peers.
Moody's also acknowledges the bank's low-risk appetite, reflected by its robust asset quality and much lower level of problem loans compared to its major peers. The bank's financial fundamentals are strong, in particular (i) the robust loss-absorbing buffer (as at end-March 2012 equity-to-assets ratio and return on average total assets totalled 16.6% and 2.9% respectively); (ii) the robust liquidity cushion (with loan--to-deposit ratio of 87%); and (iii) highly liquid assets (cash and cash equivalents), accounting for 31% of the bank's total liabilities as at end-March 2012.
In Moody's view, these factors -- combined with ZAO Raiffeisenbank's entrenched franchise and highly conservative risk appetite -- places the bank in a stronger position relative to its peers to manage the potential risks of deterioration in the operating environment.
Finally, Moody's believes that the credit profile of ZAO Raiffeisenbank is relatively well insulated from the pressures experienced by its parent, which is now rated one notch lower on a standalone basis, ba1 compared to baa3 for ZAO Raiffeisenbank.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's believes there is little likelihood of any upward pressure on ZAO Raiffeisenbank's ratings in the near-term, unless there is a material improvement in the operating environment and a consequent easing of pressures on the parent bank.
Any substantial deterioration in the operating environment resulting in significant erosion of the bank's historically robust financial fundamentals could warrant a downgrade of ZAO Raiffeisenbank's ratings. In addition, further significant downward pressure on RBI's standalone rating could affect the Russian subsidiary's debt and deposit ratings.
RAIFFEISEN BANK AVAL AND RAIFFEISEN LEASING AVAL (UKRAINE)
Raiffeisen Bank Aval's ratings were placed under review for two reasons: (i) to assess the extent to which the bank's standalone creditworthiness is correlated with that of the Ukrainian government's credit profile, which was initiated on 5 April 2012 in the context of an ongoing global review affecting all banks whose standalone ratings are higher than the rating of the government where they are domiciled; and (ii) to assess the capacity of the parent group to provide support.
Moody's says that the high correlation between the credit profile of Raiffeisen Bank Aval and of the B2 rated Ukrainian sovereign (negative outlook), and the reduced capacity of the parent RBI to provide support, have resulted in a downgrade of Raiffeisen Bank Aval's deposit and debt ratings to Ba3 from Ba1, with a negative outlook, its standalone BFSR to E+ (mapping to a standalone credit assessment of b2) from D- (mapping to a standalone credit assessment of ba3). In addition, the national scale ratings of Raiffeisen Leasing Aval (a fully-consolidated subsidiary of Raiffeisen Bank Aval) in Ukraine were downgraded to Aa2.ua from Aa1.ua following a similar action on its parent.
--- CORRELATION TO THE CREDITWORTHINESS OF THE UKRAINIAN GOVERNMENT
Moody's lowered Raiffeisen Bank Aval's standalone credit assessment by two notches to b2, in line with Ukraine's B2 sovereign rating. The downward revision of the bank's standalone ratings reflects Moody's assessment of the extent to which its creditworthiness is correlated with that of Ukrainian government's credit strengths. This reflects the bank's (i) significant exposure to the Ukrainian government bonds, accounting for about 120% of its Tier 1 capital; and (ii) the geographical concentration of the bank's operations in Ukraine's challenging operating environment.
--- WEAKENING CAPACITY OF THE PARENT BANK TO PROVIDE SUPPORT
The downgrade of Raiffeisen Bank Aval's local-currency deposit and debt ratings to Ba3, with a negative outlook, from Ba1 also reflects RBI's reduced capacity to provide capital and funding support to its Ukrainian subsidiary, if needed, as reflected by the one-notch downgrade of RBI's ratings. Moody's incorporates moderate parental support probability in Raiffeisen Bank Aval's ratings, which results in a two-notch of rating uplift from its b2 standalone credit assessment.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's believes there is little likelihood of any upward movement in Raiffeisen Bank Aval's and Raiffeisen Leasing Aval's ratings in the near-term, unless there is a material improvement in the operating environments of the bank and its parent group.
The banks' ratings could be downgraded if the operating environment deterioration in Ukraine increases the pressure on the asset quality and capitalisation. A downgrade of RBI's ratings would also have negative rating implications for the Ukrainian subsidiaries.
FULL LIST OF RATING ACTIONS
The following ratings were affected today:
..Issuer: Tatra Banka a.s.
Long-term deposit ratings downgraded to A3 from A2, with negative outlook
Short-term deposit ratings downgraded to Prime-2 from Prime-1
Bank financial strength rating confirmed at C-/baa2, with negative outlook
..Issuer: Raiffeisen Bank SA
Long-term local and foreign-currency deposit ratings downgraded to Ba1 from Baa3, with stable outlook
Short-term local and foreign-currency deposit ratings downgraded to Not-Prime from Prime-3
Bank financial strength rating downgraded to D-/ba3 from D/ba2, with stable outlook
..Issuer: ZAO Raiffeisenbank
- Long-term local and foreign-currency deposit ratings of Baa3, confirmed with a stable outlook
- Local-currency senior unsecured debt rating of Baa3, confirmed with a stable outlook
- Foreign-currency senior unsecured debt rating of (P)Baa3, confirmed with a stable outlook
- Short-term local and foreign-currency deposit ratings of Prime-3, confirmed
- Foreign-currency senior unsecured debt rating of (P)Prime-3, confirmed
- Foreign-currency subordinated debt rating of (P)Ba1, confirmed with a stable outlook
- Bank financial strength rating of D+/baa3, affirmed with a stable outlook
..Issuer: Raiffeisen Bank Aval
Long-term local-currency deposit ratings downgraded to Ba3 from Ba1, with negative outlook
Long-term local-currency senior unsecured debt ratings downgraded to Ba3 from Ba1, with negative outlook
Bank financial strength rating downgraded to E+/b2 from D-/ba3, with stable outlook
..Issuer: Raiffeisen Leasing Aval
National scale issuer and debt ratings downgraded to Aa2.ua from Aa1.ua
Raiffeisenbank (Bulgaria)'s Baa3/Prime-3, long and short-term local and foreign-currency deposit ratings remain on review for downgrade. This reflects the ongoing review of the bank's D+ standalone BFSR, mapping to ba1, which was initiated on 18 May 2012. Moody's expects to conclude the review on the bank's ratings within the coming weeks.
The principal methodologies used in these ratings was Bank Financial Strength Ratings: Global Methodology published in February 2007 and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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