Alfa-Bank “rel­a­tively well po­si­tioned” in weak­en­ing Rus­sian econ­omy

Financial Mirror (Cyprus) - - FRONT PAGE -

Among Rus­sia’s three largest pri­vate banks, Al­faBank is best po­si­tioned to cope with the weak­en­ing out­look for the Rus­sian econ­omy, Moody’s In­vestors Ser­vice said in a new re­port.

An eco­nomic down­turn will put pres­sure on the as­set qual­ity and prof­itabil­ity of the coun­try’s fi­nan­cial in­sti­tu­tions, in­clud­ing the three largest pri­vate banks by to­tal as­sets that are the fo­cus of the re­port, Al­faBank (de­posits Ba1 sta­ble, BFSR D sta­ble/BCA ba2), Bank Otkri­tie Fi­nan­cial Cor­po­ra­tion (ex-Nomos Bank, re-branded in June fol­low­ing the merger with Otkri­tie Group) (Ba3 sta­ble, D- sta­ble/ba3) and Promsvyazbank (Ba3 on re­view for down­grade, D- on re­view for down­grade)/ba3).

The new re­port dis­cusses two key re­quire­ments that de­ter­mine banks’ abil­ity to thrive in the chal­leng­ing do­mes­tic op­er­at­ing en­vi­ron­ment: (1) large loss-ab­sorp­tion cush­ions, and (2) low fund­ing and op­er­at­ing costs.

Moody’s ob­serves that of Rus­sia’s three largest pri­vate banks, Alfa has the largest loss-ab­sorp­tion cush­ion and low­est cost of fund­ing. In terms of the loss-ab­sorp­tion cush­ion, Alfa has the high­est ex­cess cap­i­tal, re­serves, and recurring pre-pro­vi­sion in­come of the three banks. In terms of costs, Alfa’s op­er­at­ing ex­penses are higher than those of Otkri­tie, but its cheap fund­ing more than off­sets this dis­ad­van­tage.

If a cap­i­tal in­crease from ex­ist­ing share­hold­ers is needed, Moody’s con­sid­ers Alfa to have more flex­i­bil­ity than Otkri­tie or PSB. In Moody’s view, Alfa’s greater flex­i­bil­ity is un­der­pinned by sup­port from the bank’s ul­ti­mate owner - Alfa Group Con­sor­tium - which is cash-rich fol­low­ing the near $14 bln sale of its 25% stake in oil com­pany TNK-BP to Ros­neft.

Alfa-Bank’s sub­sidiary re­cently con­cluded the takeover of the Bank of Cyprus Ukrainian op­er­a­tions, Bank Kypru.

In con­trast, Otkri­tie’s share­holder, Otkri­tie Fi­nan­cial Cor­po­ra­tion, has no sig­nif­i­cant non­fi­nan­cial as­sets and is highly lever­aged as a re­sult of its ac­qui­si­tion of NOMOS in 2012. For PSB’s con­trol­ling share­hold­ers, the Ananiev broth­ers, the bank is their largest as­set, which sug­gests that their ca­pac­ity to sup­port the bank in case of fi­nan­cial dis­tress is rel­a­tively low.

The lower rat­ings of Otkri­tie com­pared with Alfa re­flect the weaker loss-ab­sorp­tion cush­ion of the for­mer and its higher ap­petite for credit risk. Moody’s also ob­serves that Otkri­tie is highly de­pen­dent on volatile rev­enue sources such as earn­ings from in­vest­ment-bank­ing op­er­a­tions. The bank also faces strate­gic and op­er­a­tional chal­lenges stem­ming from the re­cent change in its con­trol­ling share­holder and on­go­ing in­te­gra­tion with other banks which is now un­der way.

Moody’s re­view for down­grade of Promsvyazbank’s rat­ings on July 9 was trig­gered by the neg­a­tive trends in the bank’s as­set qual­ity and earn­ings-gen­er­at­ing ca­pac­ity; and, the bank’s rel­a­tively weak loss­ab­sorp­tion buf­fer, as re­flected in its mod­est cap­i­tal cush­ion and low loan loss re­serves com­pared to the vol­ume of prob­lem loans.

Moody’s re­view will seek to ob­tain greater clar­ity on Promsvyazbank’s abil­ity to raise new cap­i­tal over the next three months as planned, and the bank’s as­set qual­ity dy­nam­ics as well as the sus­tain­abil­ity of its earn­ings-gen­er­at­ing ca­pac­ity in the com­ing years. At the same time, the bank’s rat­ings re­main sup­ported by its en­trenched mar­ket fran­chise, low re­lated-party ex­po­sure com­pared with peers, a track record of sound fi­nan­cial per­for­mance and a sta­ble fund­ing pro­file.

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