Moody’s Investors Service has downgraded Vozrozhdenie Bank ratings amid deteriorating operating environment

26 February 2015

Moody’s Investors Service has downgraded Vozrozhdenie Bank long-term debt and global local- and foreign-currency deposit ratings by one notch to B1, national scale rating — to A1.ru, bank financial strength rating — to E+ in response to deteriorating operating environment. The ratings outlook is stable.

“Apparently, elevated risks of the macro environment weakening and high volatility of financial markets were the key drivers of the negative rating actions on the Russian banking sector that followed the latest sovereign rating downgrade. It’s worth noting that the stable outlook proofs strong positioning of Vozrozhdenie Bank amid worsening economic conditions.

The bank has developed tight risk management policies to control the credit quality and adjust rapidly to negative economic developments. For over twenty years we have accumulated vast experience in crisis management, maintaining entrenched positions in our key niches and dwelling on fee-generating products that support stable operating revenues. We deliberately maintain high share of liquid instruments, low dependence on market funding and well-balanced FX structure of assets and liabilities with the comfortable capital position”, commented Andrey Shalimov, Deputy Chairman of the Management Board of Vozrozhdenie Bank.

Analysts of the rating agency point out that the possibility of a prolonged recessionary environment in Russia may undermine the asset quality and profitability of Russian banks. An accelerated inflation and low income growth may weaken the consumption trends and creditworthiness of the borrowers from retail, SME, construction and real-estate sectors, while substantial Ruble devaluation will have negative impact on importers and trade companies. An elevated interest-rate environment contributes to the growth of funding costs that can be hardly passed over on the borrowers due to subdued credit demand. Overall, compressed interest income coupled with elevated provisioning might adversely affect earnings power of the banks.

According to the report of the rating agency, downgrade of Vozrozhdenie Bank ratings reflects the severe and rapid deterioration of the operating environment that might weaken the bank’s asset quality and lead to an increase in the provisioning needs. At the same time, the stable outlook indicates that the risks of the bank are balanced by high coverage of non-performing loans by provisions (116% for non-performing with more than 90 days overdue as of September 30, 2014) that might limit potential negative pressure on profitability and bank’s good capital adequacy level.

Standard&Poor’s affirmed credit ratings of Vozrozhdenie Bank
Vozrozhdenie Bank Board of Directors has recommended Igor Antonov to the position of the Chairman of the Management Board