How To Rate A Bank In Russia

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1 Rating Action: Moody's assigns Counterparty Risk Assessments to 34 Russian banks; affirms 6 banks' ratings Global Credit Research - 11 Jun 2015 London, 11 June Moody's Investors Service, (Moody's) has today assigned Counterparty Risk Assessments (CR Assessments) to 34 Russian banks. This announcement follows the publication of the rating agency's revised bank rating methodology (see "Banks" published on 16 March 2015). Concurrently, Moody's affirmed the ratings of Gazprombank, Home Credit & Finance Bank, CB Renaissance Credit LLC, Khanty-Mansiysk Bank Otkritie PJSC, Bank of Moscow and MTS Bank PJSC. The outlooks on the long-term deposit and senior unsecured debt ratings remain negative for all six banks. Moody's has also withdrawn, for its own business reasons, the outlooks on these banks' subordinated debt ratings. Please refer to Moody's Investors Service's Policy for Withdrawal of Credit Ratings available on its website, Please click here to access Moody's revised bank rating methodology ("Banks," published on 16 March 2015) RATINGS RATIONALE --GAZPROMBANK The affirmation of Gazprombank's b1 baseline credit assessment (BCA), b1 adjusted BCA, Ba2 long-term local and foreign-currency deposit ratings and Not-Prime short-term foreign-currency deposit rating, Ba2 senior unsecured debt and B2 subordinated debt rating reflects adequate liquidity and funding position of Gazprombank, with only limited refinancing requirements in At the same time, Moody's notes the bank's growing problem loans (calculated as per Moody's standard approach as corporate impaired loans and retail overdue 90+ days loans), which worsened to 13.3% of gross loans as of year-end 2014 relative to only around 2% as of year-end 2013 driven by recognition of a few large impaired loans in Ukraine and Russia. Also, the bank's already modest net income has weakened in 2014 compared with the previous year, and the current operating environment will put pressure on the bank's profitability over the next months. In turn, the bank's capital adequacy ratio, although sufficient to absorb anticipated base case losses, declined to 10.7% as of year-end 2014 from 13.2% at end Moody's, however, expects that the Russian state authorities will inject additional capital into the bank in 2015, which will help to absorb potential losses stemming from deteriorating asset quality. As the third-largest systemically important bank, Gazprombank's long-term local and foreign-currency debt and local-currency deposit ratings continues to benefit from two notches of systemic support uplift from its BCA. ---HOME CREDIT & FINANCE BANK The affirmation of Home Credit & Finance Bank's b2 baseline credit assessment (BCA), b2 adjusted BCA, B2/Not- Prime local and foreign-currency deposit ratings, (P)B2 senior unsecured debt and B3 subordinated debt ratings reflects (1) the bank's asset-quality pressures (as its problem loans accounted for 15.6% of total loans as of yearend 2014), which stem from the bank's exposure to its single business line, consumer lending in Russia (Ba1 negative) exacerbated by the deteriorated operating environment in Russia; and (2) the bank's weakening profitability (with return on average assets of -1.3% as of year-end 2014) and its historically rapid loan book growth in the past, which heightens the likelihood of potential future losses in future. At the same time, the ratings are supported by (1) adequate capitalization with capital adequacy ratio of 24.4% and Tier 1 capital ratio of 17% as of year-end 2014; and (2) adequate funding and liquidity positions. The long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift. ---CB RENAISSANCE CREDIT LLC The affirmation of Commercial Bank "Renaissance Credit" LLC b3 BCA, b3 adjusted BCA, B3/Not-Prime local and foreign-currency deposit ratings, B3 senior unsecured debt and Caa1 subordinated debt ratings reflects (1) the bank's monoline specialisation in consumer lending in Russia exacerbated by the deteriorated operating

2 environment in Russia; (2) weak asset quality with problem loans accounting for 21.1% of total loans as of yearend 2014; (3) its loss-making performance (with return on average assets of around -13% as of year-end 2014) and only a limited probability of returning to profit over next months; (4) capital support from CBRC's key shareholder (ONEXIM) as reflected in recent capital injections and still strong Basel total capital ratio of 17.0% at year-end 2014; and (5) an adequate retail funding base in conjunction with a stable liquidity position. The long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift. --KHANTY-MANSIYSK BANK OTKRITIE PJSC The affirmation of Khanty-Mansiysk bank Otkritie's (KhMBO) b2 BCA, b1 adjusted BCA, B1/Not-Prime local and foreign-currency deposit ratings, and B3 (hyb) subordinated debt ratings reflects the bank's adequate funding and liquidity profile (cash instruments accounted for 33% as of year-end 2014 under IFRS), as well as the benefits it derives from its strengthened market position and historically solid customer franchise in the region of Khanty- Mansiysk AO (Ba2, negative). At the same time, the ratings are constrained by (1) the deteriorated operating environment in Russia, which pressures bank's financial fundamentals; (2) worsening asset quality both in retail and corporate loan books with NPLs (overdue more than 90 days) amounting to 6.9% at year-end 2014 (2% in 2013) under audited IFRS, (3) heightened credit risk profile given the recent merger with Bank Otkritie, which formerly focused on unsecured consumer loans (60% of loans as of 30 June 2014); and (3) weakening profitability and capitalisation on the back of higher credit costs, narrowing margins and negative revaluation of securities. Regulatory total capital adequacy ratio amounted to 11.7% as of 1 May The rating agency incorporates a high probability of affiliate support from Bank Otkritie Financial Corporation PJSC (deposits/senior unsecured Ba3, negative, BCA b1), resulting in one notch of uplift from the bank's b2 BCA. This is based on the parent's ultimate majority ownership, the close strategic fit and importance of KhMBO to the consolidated financial position of BOFC. KhMBO's long-term deposit ratings do no benefit from any government support uplift. --- BANK OF MOSCOW The affirmation of Bank of Moscow b2 BCA, ba2 adjusted BCA, ratings Ba2 long-term local and foreign-currency deposit ratings and Not-Prime short-term foreign-currency deposit rating, Ba2 senior unsecured debt and B1 subordinated debt rating reflects (1) challenging credit conditions in Russia that exert pressure on the bank's asset quality, profitability and capital adequacy; (2) the bank's comfortable liquidity profile, supported by stable depositbased funding; and (3) a diversified business profile with a strong position in the highly competitive Moscow region. Bank of Moscow's performance in 2014 was already negatively affected by growing credit costs with provisioning expenses accounted for 3% of average loan book in 2014 resulting in 90% drop of net income with RoAA of 0.1% and RoE of 1.3% (down from 2.6% and 18.7%, respectively, a year before). The standalone BCA is also compromised by the bank's status under a government-led financial rehabilitation programme - i.e., the bank is not in full compliance with the statutory requirements if the necessary loan-loss provisions are applied. Moody's expects this status to last until 30 June In addition, the standalone BCA is constrained by the bank's significantly impaired asset quality, which results in modest profitability from stable sources, as approximately 20% of the loan book is not accruing interest. The rating agency incorporates a high probability of affiliate support from Bank VTB, JSC (deposits Ba2 negative/senior unsecured Ba1 negative, BCA b1), given BOM's deep integration into VTB Group - as its 96% subsidiary - and the significant contribution BOM makes to the group's financial results. At the same time, Moody's believes that the majority of support will be ultimately provided by the sovereign, given the bank's importance to the Moscow region and the banking system as a whole. Bank of Moscow's long-term deposit and senior unsecured debt ratings do no benefit from any government support uplift in addition to its affiliate support uplift. --- MTS Bank PJSC The affirmation of MTS Bank PJSC's (MTSB) b3 BCA, b2 adjusted BCA, B2/Not-Prime local and foreign-currency deposit ratings and B3 subordinated debt rating reflects the bank's weak asset quality with overdue over 30 days loans accounted for over 26% of the bank's loan book as at year-end 2014, while growing credit costs have already resulted in loss-making performance in Furthermore, whilst MTSB reports consistently strong capital adequacy ratios with Tier 1 capital adequacy ratio (CAR) of 17.82% and total CAR of 25.52% as at 1 January 2015, it has become increasingly dependent on capital support from its shareholders, a less reliable form of support. At the same time, Moody's acknowledges that MTSB's BCA is supported by (1) the bank's partnership

3 with a sister company Mobile TeleSystems OJSC (Ba1 corporate family rating, on review for downgrade); (2) ample liquidity buffer; and (3) lower risk appetite in unsecured consumer lending and overall improvement of risk profile. The latter is demonstrated by a reduced single-name borrower concentration and the improved business model and transparency of MTSB's 66%-owned subsidiary East-West United Bank S.A. The rating agency incorporates a moderate probability of affiliate support to MTSB from JSFC Sistema (B1 CFR, negative) in case of need. MTS's long-term deposit ratings do not benefit from any government support uplift. WHAT COULD CHANGE THE RATINGS UP/DOWN The negative outlooks on these banks' long-term deposit and debt ratings imply that upward rating pressure is limited. The outlook on the long-term ratings could be changed to stable if the banks improve their profitability and asset-quality metrics, while increasing their capital levels or maintaining them at adequate levels. Downward rating pressure could emerge if (1) the already unfavorable operating environment in Russia further deteriorates, putting additional systemic-wide pressure on the banks' asset quality, profitability and capital adequacy ratios; and/or (2) the individual financial performance of the abovementioned banks becomes detrimental for their credit profiles. ---CR ASSESSMENTS Moody's has also assigned CR Assessments to 34 banks. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than expected loss and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. For Russian banks, the CR Assessment is positioned, prior to government support, one notch above the Adjusted BCA and therefore above senior unsecured and deposit ratings, reflecting Moody's view that its probability of default is lower than that of senior unsecured debt and deposits. Moody's believe that senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions. For 4 Russian banks, the CR Assessments also benefit from government support in line with Moody's support assumptions on deposits and senior unsecured debt. This reflects Moody's view that any support provided by governmental authorities to a bank which benefits senior unsecured debt or deposits is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with Moody's belief that governments are likely to maintain such operations as a going-concern in order to reduce contagion and preserve a bank's critical functions. The remaining 30 CR Assessments do not benefit from any government support, in line with our support assumptions on deposits and senior unsecured debt. This reflects our view that operating activities and obligations reflected by the CR Assessment are unlikely to benefit from any support provisions from resolution authorities to senior unsecured debt or deposits. At the same time, the rating agency assigned Prime-3(cr) short-term CR Assessments to ING Bank Eurasia and Rusfinance Bank, and Not-Prime(cr) short-term CR Assessments to the other 32 banks. The principal methodology used in these ratings was Banks published in March Please see the Credit Policy page on for a copy of this methodology. List of affected ratings Assignments:..Issuer: Agency for Housing Mortgage Lending OJSC... Counterparty Risk Assessment, Assigned Ba1(cr)..Issuer: Akibank

4 ..Issuer: AK BARS Bank..Issuer: Autotorgbank..Issuer: Baltinvestbank..Issuer: Bank of Moscow... Counterparty Risk Assessment, Assigned Ba1(cr)..Issuer: Bank ZENIT PJSC..Issuer: CB Renaissance Credit LLC..Issuer: Center-Invest Bank..Issuer: Commercial Bank Agropromcredit (LLC)..Issuer: Commercial Bank OBRAZOVANIE..Issuer: CREDIT BANK OF MOSCOW..Issuer: Derzhava

5 ..Issuer: Evrofinance Mosnarbank..Issuer: Far Eastern Bank..Issuer: Gazbank JSCB..Issuer: Gazprombank... Counterparty Risk Assessment, Assigned Ba1(cr)..Issuer: Home Credit & Finance Bank..Issuer: ING Bank Eurasia... Counterparty Risk Assessment, Assigned Baa3(cr)... Counterparty Risk Assessment, Assigned P-3(cr)..Issuer: Interprombank, JSCB..Issuer: Khanty-Mansiysk bank Otkritie PJSC..Issuer: Maritime Bank..Issuer: Metallurgical Commercial Bank..Issuer: MTS Bank PJSC

6 ..Issuer: NBD Bank..Issuer: Novikombank JSC Bank..Issuer: OTP Bank (Russia), OJSC... Counterparty Risk Assessment, Assigned Ba2(cr)..Issuer: Pervobank JSC..Issuer: Petrocommerce Bank (OJSC)..Issuer: Rosdorbank..Issuer: Rusfinance Bank... Counterparty Risk Assessment, Assigned Baa3(cr)... Counterparty Risk Assessment, Assigned P-3(cr)..Issuer: Russian International Bank..Issuer: Russian Regional Development Bank... Counterparty Risk Assessment, Assigned Ba2(cr)..Issuer: Tatfondbank Affirmations:

7 ..Issuer: Bank of Moscow... Adjusted Baseline Credit Assessment, Affirmed ba2... Baseline Credit Assessment, Affirmed b2...lt Bank Deposits, Affirmed Ba2 Negative...Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative...Subordinate Regular Bond/Debenture, Affirmed B1...Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2..Issuer: CB Renaissance Credit LLC... Adjusted Baseline Credit Assessment, Affirmed b3... Baseline Credit Assessment, Affirmed b3...lt Bank Deposits, Affirmed B3 Negative...Senior Unsecured Medium-Term Note Program, Affirmed (P)B3...Other Short Term, Affirmed (P)NP...Subordinate Medium-Term Note Program, Affirmed (P)Caa1...Subordinate Regular Bond/Debenture, Affirmed Caa1...Senior Unsecured Regular Bond/Debenture, Affirmed B3 Negative..Issuer: Gazprombank... Adjusted Baseline Credit Assessment, Affirmed b1... Baseline Credit Assessment, Affirmed b1...lt Bank Deposits, Affirmed Ba2 Negative...Subordinate Medium-Term Note Program, Affirmed (P)B2...Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2...Subordinate Regular Bond/Debenture, Affirmed B2...BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative...Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 Negative..Issuer: Home Credit & Finance Bank... Adjusted Baseline Credit Assessment, Affirmed b2... Baseline Credit Assessment, Affirmed b2...lt Bank Deposits, Affirmed B2 Negative

8 ...BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)B2...Subordinate Medium-Term Note Program, Affirmed (P)B3...Other Short Term, Affirmed (P)NP...Subordinate Regular Bond/Debenture, Affirmed B3..Issuer: Khanty-Mansiysk bank Otkritie PJSC... Adjusted Baseline Credit Assessment, Affirmed b1... Baseline Credit Assessment, Affirmed b2... LT Bank Deposits, Affirmed B1 Negative...Subordinate Regular Bond/Debenture, Affirmed B3 (hyb)..issuer: MTS Bank PJSC... Adjusted Baseline Credit Assessment, Affirmed b2... Baseline Credit Assessment, Affirmed b3... LT Bank Deposits, Affirmed B2 Negative...Subordinate Regular Bond/Debenture, Affirmed B3..Issuer: Kuznetski Capital S.A....BACKED Subordinate Regular Bond/Debenture, Affirmed B1 Outlook Actions:..Issuer: Bank of Moscow..Issuer: CB Renaissance Credit LLC..Issuer: Gazprombank..Issuer: Home Credit & Finance Bank..Issuer: Khanty-Mansiysk bank Otkritie PJSC..Issuer: MTS Bank PJSC..Issuer: Kuznetski Capital S.A.

9 REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(j) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on for each credit rating as indicated: Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person(s) that paid Moody's to determine this credit rating. The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on for additional regulatory disclosures for each credit rating. Alexander Proklov Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service Limited, Russian Branch 7th floor, Four Winds Plaza 21 1st Tverskaya-Yamskaya St. Moscow Russia JOURNALISTS: SUBSCRIBERS: Yves Lemay MD-Banking & Sovereign Financial Institutions Group JOURNALISTS: SUBSCRIBERS: Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom

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