International rating agency Moody's Investors Service has cut to B1 from Ba3 long-term deposit ratings of Dutch lender Credit Europe Bank N.V. due to the weakening BFSR of its key subsidiary, Russia-based Credit Europe Bank. The Russian bank's long-term deposit ratings and senior unsecured debt rating were also lowered from Ba3 to B1, the agency said in a press release.
Moody's affirmed Credit Europe Bank's BFSR of E+, with a stable outlook, cutting the bank's Baseline Credit Assessment (BCA) from b1 to b2. This reflects deteriorating operating conditions in Russia which have adversely influenced the bank's financials. Ratings for the bank's subordinated debt were also cut from B1 to B2. The negative outlook for Credit Europe Bank's all long-term ratings was left unchanged.
The Russian bank's national scale rating was also downgraded, data on the website of Moody's show.
As the agency thinks, a recession in Russia (Moody's forecasts Russian GDP to decline 5.5% in 2015 and 3% in 2016) would produce an adverse effect on the bank's asset quality and financial indicators. In particular, expected growth of unemployment and lower real disposable income of the public would dampen creditworthiness of retail borrowers who account for 72% of the bank's credit portfolio. Moody's expects the bank to suffer losses this year due to a decline in operating income and the substantially higher cost of risk.
Among other things, the agency pointed to modest liquid assets of the bank (8.6% of its aggregate assets as of year-end 2014 under RAS).
Moody's bears in mind Credit Europe Bank's strong capital adequacy and asset quality indicators compared to most Russian banks specialized in consumer lending. However, the deteriorating operating environment, which is aggravated by growing refinancing risks for the bank, would put heavy pressure on the bank's credit portfolio over the next 12—18 months, which is reflected in the negative outlook for the ratings.
