International rating agency S&P Global Ratings has affirmed Promsvyazbank's long-term and short-term counterparty credit ratings at BB-/B, with the ratings carrying the negative outlook. Also, the bank's national scale ratings were affirmed at ruAA-.
As the agency noted, the affirmation of the ratings reflect analysts' opinion that recent support of the bank's shareholders would take some pressure off Promsvyazbank's capitalization in the short term and, to a certain extent, offset weak financial results.
At the same time, S&P still views the bank's capitalization and profitability indicators as weak. Deteriorating economic conditions in Russia and high concentration of the bank's credit portfolio resulted in higher expenses that the bank incurred to form provisions and, consequently, took a toll on FY15 financials (losses amounted to Rub 16.4 bln). Analysts pay attention to the fact that in its 1H 2016 financial statement the bank reported net profit of Rub 1.6 bln that was generated not by raising profitability of banking operations, but upon revaluation of funds invested in real estate assets that the bank received from the majority shareholder.
The negative rating outlook reflects the agency's concerns about relatively high risks of operations in Russia, and also risks associated with deterioration of the quality of the bank's assets and capitalization which is possible over the next 12-18 months," the agency noted in a press release.
Furthermore, S&P affirmed Bank Vozrozhdenie's long-term and short-term counterparty credit ratings, also at ВВ-/В (the ratings still carry a negative outlook), and also its long-term national scale rating at ruAA-.
The agency noted that the bank's ratings were affirmed as the agency received more detailed information on the bank's business strategy after recent substantial changes in ownership (Dmitry Orlov, the bank's founder and beneficial owner died in 2014, and Promsvyazbank's holding company (Promsvyaz Capital B.V.) bought around 75% of Bank Vozrozhdenie shares in July-September 2015). In line with the agency's baseline scenario, the recent ownership shakeup at Russia-based Bank Vozrozhdenie would most likely not lead to abrupt changes in the bank's strategy or its appetite to take risks. As far as the agency understands, the bank would continue to operate as an independent legal entity, and over the next 12-18 months it would not merge with Promsvyazbank as part of Promsvyaz Capital B.V., S&P noted.
S&P still views Bank Vozrozhdenie's development strategy as relatively conservative and pointed out that this strategy allowed the bank to deliver, overall, stable results for the economic cycle. At the same time, the agency does not rule out that in the course of time the bank's new controlling shareholder could amend the bank's strategy more substantially, providing for the joint operation of Bank Vozrozhdenie and Promsvyazbank. S&P could revise its rating if it draws a conclusion that the new owners acknowledge the bank's more aggressive than earlier appetite to take risks, thus exerting an adverse impact on predictability and stability of its business position, the press release runs.
Bank Vozrozhdenie's negative rating outlook reflects difficult conditions of banking operations in Russia that, as analysts think, would hurt the bank's profitability due to high provision costs and could dampen its capital cushion.