OREANDA-NEWS. October 06, 2010. Following the dismissal of Mayor Yuri Luzhkov Fitch, an international rating agency, added Bank of Moscow to its list of negative outlooks. The agency’s concerns are linked to the bank’s highly concentrated funding base: five major depositors account for 20% of the balance sheet.

Fitch has put Bank of Moscow’s BBB- long-term default rating in its Negative Rating Watch list. The “confrontational” way in which power is changing hands may carry “risks of a deterioration in relations between the bank and the city following the appointment of a new Moscow mayor and government,” the agency says. Fitch points out close ties between the bank and the former municipal administration and the large volume of business done with companies linked to departing officials.

In that connection the agency has expressed particular concern about the bank’s heavily concentrated funding base: five major corporate depositors (including one non-resident) have claims totalling R5bn. According to Fitch, some of this is long-term resources, but the clients in question could still take co-ordinated measures that would deprive the bank of a fifth of its assets. Mark Rubinstein, the head of analysis at FK Metropol, estimates that affiliated parties account for roughly 25% of both assets and liabilities.

Bank of Moscow’s press services emphasises that “the bank’s long-term rating has been reaffirmed. Its financial condition is absolutely stable. In our view, the need to keep our rating on the watch list will disappear soon.” Positive factors noted by Fitch include the bank’s liquidity reserves – approx. USD 6.3bn at the end of September, including cash, net interbank placements and securities that are used to access CBR refinancing. In part these reserves are backed by city funds (USD 3.2bn or 13% of liabilities).

At this time Bank of Moscow also holds an international rating from Moody’s (Baa1 on long-term Russian rouble deposits, or D with a negative outlook for overall financial stability). The agency declined to comment on the situation, citing its politicised nature.

In early September RusRating reaffirmed its BBB+ rating for Bank of Moscow (relatively high creditworthiness, with a stable outlook). RusRating General Director Richard Hainsworth points out that his agency’s assessment already took account of the bank’s exposure to political risks and there are no plans to change it in response to Yuri Luzhkov’s departure. Mr. Hainsworth sees no risks for the bank in the short to medium term, although he notes that its longer-term prospects will depend to a large extent on the strength of its ties to the new mayor.

The announcement by Fitch indicates that the bank’s long-term rating will be reaffirmed at its current level if the new municipal authorities are committed to supporting the bank in case of need but will be cut if the administration provides weaker backing than its predecessor.