Fitch Upgrades Credit Bank of Moscow’s LT IDR and National Long-Term Rating
Fitch Ratings-London/Moscow-18 April 2008: Fitch Ratings has today upgraded Russia-based Credit Bank of Moscow’s (CBOM) Long-term Issuer Default Rating (LT IDR) to 'B' from ‘B-(B minus)’ and its National Long-term rating to ‘BBB-(BBB minus)(rus)’ from ‘BB+(rus)’. Other ratings are affirmed at Short-term IDR 'B', Individual 'D', Support '5' and Support Rating Floor ‘No Floor’. Following the upgrade, the Outlooks on the LT IDR and National Long-term rating are now Stable.
The upgrade reflects stable growth of the bank’s franchise in Moscow and the Moscow region, which has not compromised its good asset quality and adequate liquidity, with the latter supported by good funding diversification.
Profitability ratios improved marginally in 2007; however, they are still moderate. Non-performing loans have been low on the back of a moderate risk appetite in retail lending and generally good-quality corporate borrowers. Reserves are adequate relative to current loan impairment, but at 0.8% of gross loans may not be sufficient to absorb any future losses. Market risk is not significant.
Foreign funding maturing in 2008 is equal to a moderate 9% of liabilities and the bank’s management expects this to be at least partially refinanced. Capitalisation is likely to soften from the end-2007 levels of 15.3% for Tier 1 ratio and 15.7% for Total ratio as asset growth outpaces internal capital generation. However, in Fitch’s view, capitalisation should remain adequate at end-2008, and the Total capital ratio comfortably above the 12% covenanted level, absent significant credit losses.
At the end of 2007 the bank’s previous CEO resigned, and the sole shareholder, Roman Avdeev, appointed himself to the position. CBOM’s concentrated ownership and the direct involvement of the shareholder in the bank’s management might heighten corporate governance risk, in Fitch’s view, although related-party lending has been moderate to date and independent directors are expected to be appointed. Mr. Avdeev plans to personally oversee the bank’s expansion outside the core Moscow region, as well as its efforts to achieve the targeted return on equity of 15% in 2008 (2007: 10.6%). Although the expansion might elevate CBOM’s credit and operational risk profiles, Fitch understands that growth will be gradual and mostly in adjacent regions.
Upside potential for the ratings is limited in the short-term, but might be driven by a successful further broadening of franchise, combined with an acceptable risk profile and strengthened profitability. Downside pressure is unlikely at present, but could arise from significant worsening of asset quality or considerable deterioration of corporate governance.
CBOM was among the 60-largest Russian banks by assets at end-2007. Its core business is to provide banking services to medium-sized trading companies and retail customers (notably auto lending and mortgages).