OREANDA-NEWS. December 22, 2007. Moody's Investors Service has changed the outlook on the B3/Not-Prime local and foreign currency deposit ratings of Sudostroitelny Bank ("SB Bank") to positive from stable, reported the press-centre of SB Bank.

SB Bank's bank financial strength rating (BFSR) of E+ and its long-term national scale rating (NSR) of Baa2.ru were affirmed with stable outlook. Today's rating action reflects the ongoing improvements in SB Bank's risk profile and franchise value since the ratings were assigned to the bank in December 2005.

In particular, SB Bank has significantly reduced the level of borrower concentration in its loan book, which, at the end of H1 2007, stood at 121% of the bank's Tier 1 capital, down from 180% at the end of 2004. SB Bank has also increased the share of lending activities in its assets structure, which rose to 55% of the total assets at the end of H1 2007 from 34% at the end of 2004. Furthermore, the bank demonstrated positive developments in its funding structure, as the concentration of the largest depositors has declined substantially over the past several years.

Moody's expects the bank's expansion of its branch network to allow it to further strengthen its franchise and market positioning going forward. At the same time, although the bank's exposure to the Russian interbank lending market has declined materially over the past several years, the rating agency notes that this exposure is still significant and accounts for over 20% of SB Bank's total assets. In Moody's view, a material liquidity stress in the Russian interbank market could adversely affect the bank's interbank positions as most of its counterparts are small banks with relatively low credit quality. Moody's says that continued diversification of SB Bank's business away from interbank lending, enhancement of the bank's franchise, coupled with a reduction in the level of borrower concentrations and sustainable profitability would exert upward pressure on the bank's BFSR and deposit ratings.

Conversely, the rating agency cautions that any material increase in borrower concentration, deterioration in the bank's asset quality, or a significant decline in capital adequacy or liquidity could prompt Moody's to change the positive outlook on the ratings back to stable. Headquartered in Moscow in the Russian Federation, SB Bank reported total assets and net profit of US$1,18 billion and US$8,7 million, respectively at the end of H1 2007 based on IFRS reports.

Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Russia are designated by the ".ru" suffix. NSRs differ from global scale ratings, as assigned by Moody's Investors Service, in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.