Russian rating agency RIA Rating has lowered StarBank's national scale credit rating from BBB to BB-. The rating carries a negative outlook.
As the agency noted, the bank's low operating profitability has produced a substantial adverse impact on the rating as net interest income is modest and operating expenses are relatively high.
The main reason behind the rating downgrade was large-scale additional formation of loan loss provisions (up 50%, or nearly Rub 1 bln, in 4Q 2015 after a leap of 5.5x, or more than Rub 1.5 bln, in the third quarter) and the agency's expectations that the bank's asset quality will continue to deteriorate.
RIA Rating pointed out that in 2015 the bank generated decent income from assets received from its shareholders for free that, to a large extent, offset losses sustained from the formation of provisions, but the likelihood of further shareholder support is estimated as modest.
Analysts also noted that the bank is characterized by heavy dependence of funding on retail deposits. This is a risk factor as this raises funding costs and makes the bank more sensitive to actions of deposit holders.StarBank's rating is backed by decent capital adequacy. As of January 1, 2016 the lending institution's capital adequacy ratio (N1.0) equaled 14.5%, and the core capital adequacy ratio (N1.2) came to 9.8%. "So, the bank holds a substantial capital cushion, but given trends in operating profit and loan loss provisions the bank may again need an external capital injection over the medium or long term," analysts said.