Vneshprombank lifted to ‘B-/ruBBB-‘

Standard & Poor's Ratings Services said that it had raised its long-term counterparty credit rating on Russian Foreign Economic Industrial Bank (Vneshprombank) to 'B-' from 'CCC', and affirmed the 'C' short-term rating. The outlook is stable. At the same time, the Russia national scale rating was raised to 'ruBBB-' from 'ruB+'.
"The upgrade reflects improvements in the bank's loan portfolio diversification," said Standard & Poor's credit analyst Tatiana Nikolenko. "A longer track record of adequate financial performance and limited market risk also supported the upgrade."
The ratings remain pressured by Vneshprombank's concentrated funding base, limited customer franchise and distribution network, weak enterprise risk-management framework, and low provisioning.
Shareholders remain supportive of Vneshprombank, providing additional capital and fully retaining earnings within the bank.
With total assets of USD 447 million on Dec. 31, 2007, Vneshprombank is a small Russian bank, ranked among Russia's 150 largest banks and with a market share of about 0.5%. The bank specializes mainly in issuing short-term corporate loans and raising short-term funds from corporations. Headquartered in Moscow, the bank has only three branches and seven outlets in three large Russian cities, but plans to open 11 more branches in other major cities in the next 18 months.
On March 31, 2008, the bank's 20 largest exposures accounted for a low 108% of adjusted total equity (ATE). The current quality of the loan portfolio is satisfactory. More than 30% of Vneshprombank's assets are cash and cash equivalents, representing a good liquidity cushion and limiting credit risk.
Vneshprombank's limited customer franchise and poor funding diversification negatively affect the funding profile.
Profitability is adequate, with return on assets standing at 2.2% in 2006-2007. Vneshprombank's capitalization is adequate, with ATE to total assets of 13.2% on March 31, 2008.
"The outlook is stable because we expect Vneshprombank to retain its current business profile, including the short-term maturity of its assets and liabilities, but also its high concentrations in deposits," said Ms. Nikolenko.
An upgrade would depend on the bank's ability to demonstrate sustainable expansion of its franchise, while maintaining capitalization and profitability at adequate levels, achieving notable diversification in its funding sources, and strengthening its risk management.
A downgrade could result if Vneshprombank's capitalization, asset quality, or profitability comes under severe pressure or its funding profile deteriorates significantly.