Fitch affirms Credit Europe Bank at 'BB-'
Fitch Ratings has affirmed Credit Europe Bank (Russia) Ltd's (CEBR) LongTerm Issuer Default Ratings (IDRs) at 'BB-' with a Negative Outlook. A full list of rating actions is below.
The IDRs of CEBR are driven by its Standalone Credit Profile, as reflected by its Viability Rating of 'bb'. The Negative Outlook reflects the risks to the bank's financial position associated with the coronavirus outbreak in Russia and slower economic activity and, as a result, potential negative implications on the asset quality and profitability metrics, as well as on the bank's capitalisation.
The VR reflects CEBR's fairly limited franchise in the concentrated Russian banking sector, some imbalances in the bank's business model resulting in volatile growth and cost of risk in recent years, and only moderate financial metrics.
Asset-quality risks mainly stem from CEBR's loan book, which accounted for 66% of total assets at end1Q20. Impaired loans (Stage 3 under IFRS 9) were 9% of total loans, moderately covered with total loan loss allowances (LLAs) by 75%.
Coverage of impaired loans by specific LLAs was a lower 50% at end-1Q20. Negative pressure on the asset-quality metrics in the current environment stems from the bank's notable exposure to construction and real estate t (9% of gross loans) and unsecured retail lending (a further 34%).
Coronavirus- r elated restructurings and payment holidays were provided to 25% of corporate exposures and 7% of retail exposures at end-1H20, which is almost twice higher than the sector average, indicating potential asset-quality weakness in the medium term.
CEBR's
performance worsened in 1Q20, with a net loss of RUB400 million (-7% return on average equity, annualised).
This resulted mainly from additional provisioning of loans due to weaker macro-prudential metrics, with the cost of risk rising to 5% of average loans (annualised) from 1.7% in 2019. Net of pandemic-related adjustments to provisions the bank would have been break-even. Net interest margin was broadly stable at 7.4% in 1Q20 (annualised) versus 8.1% in 2019, while operating expenses remained rather high at 69% of gross revenues.