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Moody’s review RCB ratings for upgrade

22/05/2017 09:15
Moody's has placed on review for upgrade RCB Bank's B3 long-term deposit ratings and its b3 baseline credit assessment (BCA).

According to a statement, the review will focus on the extent to which: (1) RCB Bank will further strengthen the business links with its main shareholder, Bank VTB, JSC (foreign currency deposits: Ba2, foreign currency senior unsecured debt: Ba1, baseline credit assessment: b1, outlook: stable) while continuing to grow its own business in parallel; and (2) the financial performance of the bank will continue to improve exerting upward pressure on its BCA.

During the review period the rating agency will also focus on the bank's liability structure mainly the proportion of corporate deposits as well as the stability of these deposits, which will affect the loss absorption buffer the rating agency assumes. Further, given the increasingly long lasting relationship between RCB Bank and Bank VTB, the rating agency will re-examine the ability and likelihood that Bank VTB will support RCB Bank in case of need.

The rating action will focus on the extent to which RCB Bank will continue to grow its own business while at the same time strengthening the business links with Bank VTB, which guarantees the majority of RCB Bank's loans. Although fluctuating, loans guaranteed by Bank VTB have typically accounted for around 70% of RCB Bank's total loans. Given the increasingly long lasting links with Bank VTB, the rating agency will incorporate in its review a reassessment of the capacity and likelihood that Bank VTB will support RCB Bank in case of need.

The review will also focus on expectations that RCB Bank's financial performance will continue to improve, reflecting the improving operating conditions both in Russia, where the majority of RCB Bank's clients operate, and in Cyprus where the bank is gradually building domestic operations. The bank's ratio of non-performing loans to gross loans stood at a low 0.47% as of December 2015 while capital buffers remained strong with the Tier 1 ratio at 22.0%.

The rating agency also expects RCB Bank to continue to improve its funding diversification by increasing its access in the inter-bank market as well as through its growing deposit franchise in Cyprus. Although RCB Bank has a high reliance on funding provided from Bank VTB, refinancing risk is low as this funding is matched against loans guaranteed by Bank VTB.

During the review period the rating agency will also focus on the bank's liability structure mainly the proportion of corporate deposits as well as the stability of these deposits.

The ratings are currently on review for upgrade. RCB Bank's ratings will be upgraded if the bank continues to grow its own business while at the same time strengthening the business links with Bank VTB and maintaining its strong financial fundamentals, mainly its current capital buffers and low level of NPLs. A higher loss absorption buffer, reflecting better stability of the bank's corporate deposits, as well as an increased capacity and likelihood by Bank VTB to support RCB Bank in case of need, would also result in an upgrade.

Downward pressure on the ratings could develop if the financial performance of the bank worsens materially or if VTB Bank disengages from RCB Bank resulting in a material weakening in RCB Bank's franchise.