Fitch Affirms PJSC MTS Bank at 'B+'; Outlook Stable
This commentary also serves as a correction to those published on 18 September 2014 and 13 March 2015. The former should have placed the Short-term IDR on RWN, while in the latter it was unaffected and remained on RWN. Fitch has now affirmed the Short-term IDR and removed it from RWN.
KEY RATING DRIVERS - IDRS, NATIONAL LONG-TERM RATING, SUPPORT RATING
The removal of the RWN on MTSB mirrors the rating action on its parent Sistema Joint Stock Financial Corporation (Sistema, BB-/Stable, see ' Fitch Affirms Sistema at 'BB-', Outlook Stable ' dated 18 March 2015 at www.fitchratings.com). MTSB's IDRs, National Long-term Rating and Support Rating factor in the likelihood of support the bank may receive, if needed, from its major owner, Sistema, and/or its subsidiaries.
In Fitch's view, Sistema's propensity to provide support is likely to be high, given the majority ownership; MTSB's role within the group, including its treasury functions; the track record of capital support, including RUB13.1bn contributed in 4Q14; the brand association with OJSC Mobile TeleSystems (MTS, BB+/Stable), a major operating subsidiary of Sistema; and the significant risks of reputational and market access damage for the group in case of MTSB's default. Fitch considers that the cost of any potential support would likely be manageable, relative to the size and financial ability of the broader group.
At the same time, the current one-notch difference between the ratings of Sistema and MTSB reflects the bank's weak performance to date and its limited strategic importance for the group.
RATING SENSITIVITIES - IDRS, NATIONAL LONG-TERM RATING, SUPPORT RATING
An upgrade of Sistema would likely result in an upgrade of MTSB's support-driven ratings. However, a prolonged period of weak performance at MTSB could negatively impact the group's long-term commitment to the bank's development, perhaps limiting the potential for rating upside. Failure of the parent to provide timely support, if needed, could result in a downgrade of the support-driven ratings.
KEY RATING DRIVERS - VIABILITY RATING (VR)
MTSB's 'b-' VR is driven by the bank's weak asset quality, performance and strategy execution. However, the rating is supported by the still reasonable capital buffer following the equity contribution in 4Q14, positive pre-impairment profitability on a cash basis and an adequate liquidity position underpinned by significant and rather cheap funding from its parent and affiliated entities.
For more details on VR drivers see "Fitch Affirms PJSC MTS Bank's Viability Rating at 'b-'" dated 13 March 2015 at www.fitchratings.com.
RATING SENSITIVITIES - VR
A marked deterioration in the capital position as a result of further asset quality problems and operational losses could lead to a downgrade of the VR. The VR could stabilise at its current level in case of a stabilisation of the operating environment and from improvements in asset quality, resulting in stronger financial performance.
The rating actions are as follows:
Long-term IDR affirmed at 'B+', removed from RWN, Stable Outlook
Short-term IDR affirmed at 'B', removed from RWN
National Long-term Rating affirmed at 'A-(rus)', removed from RWN, Stable Outlook
Viability Rating affirmed at 'b-'
Support Rating affirmed at '4', removed from RWN
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