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Fitch Ratings has upgraded Credit Bank of Moscow's Viability Rating to 'bb'

10.09.2020

On 10 September 2020, Fitch Ratings upgraded Credit Bank of Moscow’s (MKB) Viability Rating (VR) to ‘bb’, while the outlook remained "negative", as is the case for the entire Russian banking sector. The IDRs (Issuer Default Ratings) are affirmed at ‘BB’. Previously, the IDR at ‘BB’ reflected one-notch uplift over the bank's viability rating of ‘bb-‘ as it had a substantial volume of qualifying junior debt. Now the IDR is based on the Bank's credit on a stand-alone basis, as reflected in its viability rating.

The upgrade of the VR reflects sustainably improving assets quality as the share of high credit risk loans has shrunk. Fitch experts believe that such loans, which are very close to the level of problem loans disclosed by the Bank (Stage 3 and purchased or originated credit-impaired (POCI)), demonstrated a positive trend, having declined from RUB 80 bln in 2019 to RUB 58 bln in 1H2020. Fitch no longer considers loans issued to one of car dealers and related-party construction company to be of high credit risk, as the borrowers have managed to dramatically improve their financial standing and significantly reduce their debt to the Bank since end-2019.

"The viability rating reflects CBM's credit on a stand-alone basis, without relying on any external support. Thus, Fitch's decision confirms the Bank is managed efficiently, follows an appropriate development strategy, has a competitive edge and sound internal processes. External appraisal of the positive changes in our assets quality is especially heart-warming for us given the economic challenges caused by the coronavirus and falling oil prices," commented Vladimir Chubar, Chairman of the Management Board.

Furthermore, Fitch upgraded SRF (Support Rating Floor) from ‘B’ to ‘B+’, reflecting higher probability of state support to privately-owned banks in Russia, as evidenced by the regulator's rhetoric. This revision also captures the Bank's moderate systemic importance.

In evaluating other rating components, Fitch analysts noted that:

  • The Bank has ample possibilities to raise additional liquidity, if needed.
  • Analysing profitability indicators, Fitch removes gains from one-off securities trades, focusing on recurring profits. Nevertheless, the adjusted pre-impairment profit enables the Bank to cover adequately its risky assets. Conservatively assuming an extra 50% stress on the risky assets, the Bank would therefore need less than 1 year to reserve them sufficiently.
  • Despite higher loan impairment charges, return on average equity was a decent 11%