* ‘Stable’ outlook; VTB to reduce control to 46% *
.jpg)
Moody’s Investors Service has upgraded RCB Bank’s deposit ratings to Caa1 from Caa2 with a ‘stable’ outlook, following the rating agency’s upgrade of the Cyprus’ government bond rating to B3 from Caa3 and the subsequent raising of Moody’s deposit ceiling in Cyprus to Caa1 from Caa2.
Moody’s said its upgrade of RCB deposit ratings reflects the raising of the country deposit ceiling, which previously constrained RCB’s ratings, and RCB’s strong regulatory capital buffers and stable funding profile, balanced against its limited domestic franchise.
This, the rating agency said, reflects both RCB’s dependence on its parent bank, Russian Bank VTB, JSC and VTB’s intention to reduce its stake in RCB, formerly Russian Commercial Bank.
RCB was incorporated in Cyprus mainly to serve VTB Group’s interests and although the bank plans to expand its local operations, the bank’s franchise outside the VTB Group remains limited. RCB has limited franchise as VTB currently originates, funds and guarantees the majority of RCB’s loans, in addition to maintaining a high level of oversight.
Furthermore, despite this strong linkage with VTB, the rating agency also considers that this association will likely weaken going forward, in light of both VTB’s planned divestment from RCB Bank through a capital increase, which will decrease its stake to 46.29% from 60% currently, as well as the 38% contraction in RCB Bank’s balance sheet in 2013.
RCB Bank’s ratings balance these considerations against its currently favourable financial profile, which benefits from the ongoing support of VTB. Although nominal leverage is relatively high, the bank reports strong regulatory capital levels, benefitting from guarantees and cash collateral against most of the bank’s loans, which reduce its risk-weighted assets.
As of December 2013, the bank reported a Tier 1 ratio of 16.78%, which enabled it to pass the European Central Bank’s comprehensive assessment with flying colours. Cash collateral also improves the bank’s asset quality with impaired loans accounting for 0.53% of gross loans. RCB Bank’s funding and liquidity profiles also benefit from stable funding provided by Bank VTB.
Moody’s said upward pressure on the bank’s deposit ratings could develop if the deposit ceiling in Cyprus is further raised. Over the longer term, positive pressure could develop on RCB Bank’s BCA if the bank strengthens its franchise outside the VTB group while maintaining its strong financial profile.
