Moody’s Investors Service cut the outlook on the following global scale ratings of Russian Standard Bank to ‘negative’ from ‘stable’, while the outlook on the bank’s Not Prime short-term local and foreign currency deposit ratings remains stable.
According to Moody’s, the change in RSB’s rating outlook was prompted by its weakened liquidity position, reflected in the bank’s increased vulnerability to capital market sentiment as a result of the recent credit crunch and the depletion of a significant amount of liquid assets in 3Q 2007 following the repayment of its maturing market borrowings.
Although RSB reported very strong positive liquidity gaps for short-term maturity periods as of end-1H 2007, most of the loans with a short-term maturity are credit card and point-of-sale loan repayments, with borrowers able to reuse the cards within already approved limits once the repayments have been made. Although RSB can  cancel limits or demand repayment in full to support its liquidity position, such decision would, in Moody’s view, be likely to have a negative impact on the bank’s business franchise.
Furthermore, RSB recently announced that it would cease charging a number of commissions and fees for its consumer loans, which, in Moody’s opinion, places pressure on the bank’s profitability and internal cash-generating capacity.
In 2H 2007 RSB implemented stricter origination procedures which, according to the bank, will partly offset the tightening in interest margins through a decrease in credit costs.
However, while RSB’s profitability is likely to decline significantly going forward, it is still expected to be strong relative to the bank’s Russian peers thanks to its extensive customer base in the Russian consumer finance segment, relatively high margins and overall efficient management.
Moody’s also cautions that, in the event that RSB has limited access to international credit markets for a prolonged period, this could negatively affect its loan expansion and consequently erode the bank’s franchise value.
The rating agency will continue to monitor RSB’s creditworthiness closely and take appropriate rating actions based on further developments. An inability to attract relatively long-term and more diversified funding to enhance its liquidity position and maintain its currently strong franchise could increase the negative pressure on RSB’s creditworthiness and result in a downgrade of its ratings.
Conversely, improved liquidity and a more diversified funding structure could, if coupled with sustainable and strong earnings generated under new lending conditions, improve the bank’s credit quality and result in Moody’s changing the rating outlook back to stable.
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