OREANDA-NEWS. National Rating Agency has affirmed its national scale 'AA-' credit rating on Investtorgbank OJSC JSCB. The outlook for the rating is negative.

The negative outlook reflects the materialization of general risks, which the Russian banking sector is currently facing. This explains the bank's losses and deterioration of its loan book quality (with retail loans decreasing in 1Q 2015 and contracting by 10% from Dec. 1, 2014). In the period from Dec. 1, 2014 through Apr. 1, 2015 we observed a growth of nonperforming loans and loans in higher risk categories (III-V) and an increase of the share of 20 largest borrowers.

The macroeconomic situation prevents Investtorgbank from achieving its profitability targets: the 2014 net income totaled RUB810 million. The bank posted losses of over RUB1.2 billion in 1Q 2015, and its interest income decreased (the interest expenses-to-interest income ratio grew to 92% in 1Q 2015 vs. 60% in 2014). In order to improve Investtorgbank's financial performance in the current challenging operating environment, the bank's Board resolved to change its funding policy and focus, from 2Q 2015, on the lending of SME and individuals (including general and subsidized mortgage lending), rather than continue building its liability base with the main focus on retail deposits.

Additionally, the bank is taking cost control measures, which, it believes, will start paying off in the 2nd half of 2015.

The rating is supported by the bank's strong liquidity position (characterized by both NRA metrics are liquidity ratios that are comfortably above minimum regulatory requirements), good loan book collateral protection (by our estimates, the collateral-to-loan ratio for customer loans is around 200%) and lower investments in non-core assets (the bank divested a closed-end mutual fund in late 2014). The rating also factors in Investtorgbank 's recapitalization efforts (including the expected use of a RUB1.8 billion subordinated loan in 2Q 2015).