OREANDA-NEWS. March 14, 2013. International rating agency Moody’s Investors Service took the following rating actions on B&N Bank:

Long-term local- and foreign-currency deposit rating downgraded to Caa1 from B2;

Standalone bank financial strength rating (BFSR) downgraded to E from E+;

Not Prime short-term local- and foreign-currency deposit ratings affirmed;

National scale rating (NSR) downgraded to Ba1.ru from Baa1.ru;

The outlook on the bank’s BFSR and the long-term ratings is stable.

According to the agency, the main triggers for the rating downgrade are related to the low level of capital adequacy (according to the stress-test applied by the agency), weak profitability and a risky credit policy.

Nevertheless, during the post-crisis period B&N Bank has demonstrated a positive trend in its key financial highlights despite the fact that in 2010 the Bank launched its long-term development strategy requiring significant investments. According to IFRS financial statements, the Bank’s interest income for 9m2012 amounted to RUB 9.8 billion (+32.3% versus 9m2011). At the same time, the net profit increased 2.5x and totaled RUB 520.7 million.

The Bank has successfully continued its efforts to decrease concentrations of the loan book related to the construction/real estate industries and Top-20 borrowers, which historically were considered as the key factors constraining the Bank’s rating. Furthermore, to ensure the successful implementation of the development strategy, in 2012 the majority shareholder strengthened the Bank’s capital by several injections: RUB 4 billion of Tier 1 capital and USD 50 million of Tier 2 capital. Moreover, in early 2013 another additional share issue of RUB 3 billion was registered by the Central Bank of Russia. The latest capital injections confirm the intention of the owner to adhere to the plans for further growth and support of the Bank.

“During the last two years our bank is in an active investment stage,” said Mikail Shishkhanov, B&N Bank President and majority shareholder. “Our low profitability dynamics is a result of business diversification: we launched the card project Эlixir and a new VIP service B&N Exclusive. In 2013 we plan to continue investing in IT-technologies and branch network expansion. These investments are envisaged as a part of the adopted business strategy, which is focused on the creation of a universal financial institution capable of demonstrating a long-term sustainable growth,” added Mr. Shishkhanov.

“We understand that the main impetus for these rating actions is the fact that the Eurozone is in the grip of recession. We admit Moody’s concerns that in the event of a negative trend in line with the crisis scenario the expected losses on the loan portfolio of Russian banks will increase substantially and the banks will be unable to absorb their losses. However, we believe that the agency was unreasonably negative in its concerns when tightened requirements for the capitalization of Russian banks. Moody’s capitalization stress-test is too strict and does not take into account the current asset quality and credit policy of each specific bank. According to our estimates, the rating downgrade will not have any material impact on the Bank’s activities and its further growth,” stated Irina Komarova, B&N Bank Senior Vice President.