* Vote of confidence after Otkritie departure *
Moody’s Investors Service upgraded RCB Bank’s long term local- and foreign-currency deposit ratings to B1 from B3 and its baseline credit assessment to b2 from b3, just days after troubled shareholder Otkritie Financial Corporation sold a major stake in the Cyprus bank to a management-held group.
Moody’s said that Tuesday’s rating action concludes the review initiated on May 19 and reflects RCB’s strong solvency as well as Moody’s expectation that the bank will continue to grow its standalone business and strengthen its franchise.
The rating increase was also based on the expectation that RCB Bank will maintain its strong links with Russia’s Bank VTB, JSC (Bank VTB) (long-term local currency deposits: Ba1 stable, BCA: b1) one of its main shareholders with a 46.3% stake, which has led the agency to incorporate one notch of rating uplift in RCB Bank’s deposit ratings to capture a moderate probability of support from Bank VTB in case of need.
The outlook on the long-term deposit ratings was changed to ‘stable’ reflecting Moody’s expectation that the bank’s financial fundamentals will remain broadly unchanged over the next 12-18 months.
The upgrade of the BCA to b2 from b3 reflects RCB Bank’s strong solvency, reflected in high capital and low levels of problem loans as well as Moody’s expectation that the bank will continue to grow its standalone business and strengthen its franchise.
Although currently most of RCB Bank business stems from its links with Bank VTB, with more than 60% of RCB Bank’s loans guaranteed by Bank VTB, RCB has been strengthening its stand-alone franchise over the last few years. Moody’s expects the bank to gradually grow further its standalone operations both with foreign customers based in
RCB Bank maintains a strong solvency position, Moody’s said.
As of December 2016, the ratio of the bank’s shareholder’s equity to total assets improved to 5.8% from 4.6% the year before, while its Tier 1 capital ratio was a high 20.79%. At the same time, RCB Bank’s ratio of non-performing loans (NPLs) to gross loans stood at a low 0.83%. The bank is further buffered by its high coverage of problem loans, with the ratio of loan loss reserves to NPLs increasing to 90.3% in December 2016 from 82.1% in December 2015, and its high profitability, with a 1.0% return on assets as of December 2016.
RCB Bank’s deposit ratings now incorporate one notch of uplift reflecting Moody’s view of a moderate likelihood of support from Bank VTB in case of need. Although in 2014 VTB Bank’s ownership in RCB Bank declined to 46.3% from 60% previously, RCB continues to have strong ties with Bank VTB which were tested during the financial crisis in
In its application of its Loss Given Failure analysis for RCB Bank, Moody’s continued to incorporate a high, 62%, proportion of corporate deposits in the bank’s liability structure which is in line with its mainly corporate business focus. Moody’s now also assumes a 25% outflow of corporate deposits prior to failure, an assumption applied to all European banks. The revised LGF assumptions do not have an impact on RCB Bank’s ratings.
Commenting on this development, RCB Bank’s CEO, Dr. Kirill Zimarin, said that the Moody’s rating reaffirms the confidence in the bank from both the bank’s clients and the management.
“With strong capital and liquidity position, confirmed by this improved rating, RCB will continue implementation of its strategy focused on growth in the Cypriot and other European markets”, Dr. Zimarin said.
The Moody’s upgrade came a week after the bank announced that Otkritie Financial Corporation sold its shareholding to a company controlled by CEO Zimarin who subsequently increased his stake to 49.9%.
Otkritite faces a potential bailout by the
