18:36 - 20.08.2019

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August 20, Fineko/abc.az. Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDR) of PJSC Chelindbank (Chelind), Primsotsbank (PSCB), Novosibirsk Social Commercial Bank Levoberezhny, PJSC (LB) and Bank Avers (Avers) to 'BB' from 'BB-'. The Outlooks are Stable. A full list of rating actions is at the end of this rating action commentary.

 

KEY RATING DRIVERS

IDRS AND VIABILITY RATINGS

 

The upgrades reflect the banks' continued track record of stable performance, while maintaining prudent risk appetites and solid liquidity and capital buffers. They also reflect Fitch's view that the operating environment in Russia has improved due to the implementation of a consistent and credible policy framework that should deliver improved macroeconomic stability and better resilience to shocks, which will be beneficial for the banks' credit profiles.

 

At the same time, the ratings factor in the banks' limited franchises in the concentrated Russian banking sector, although their market shares are notable (around 5% of loans, lower for Avers) in their respective home regions. The credit profiles of PSCB and LB are closely correlated given their common ownership and similar business models, although transactions and risk-sharing between the banks have been limited. Avers' franchise is more limited, as it is focused on providing treasury functions for its sister group TAIF, a large oil refining/petrochemical holding in the Republic of Tatarstan (BBB/Stable), which is ultimately controlled, like the bank, by individuals close to republic authorities, Fitch understands from media reports.

 

The Stable Outlooks on all four banks reflect Fitch's expectations that their metrics will remain relatively stable in the medium term, and that any potential moderate asset quality deterioration could be absorbed by significant pre-impairment profit without eroding their capital buffers. The Stable Outlooks also factor in the banks' stable funding profiles and ample liquidity.

 

Asset quality is good at all four banks. Stage 3 loans made up a moderate 7.5% of total loans at Chelind, 5.4% at PSCB, 7.7% at LB and a low 1.2% at Avers at end-1Q19. These largely comprised legacy loans and we consider them to be the most problematic exposures in their loan books. Coverage of Stage 3 loans by total loan loss allowances was reasonable (over 120%, but a higher 2x at Avers). Occasional related party lending to TAIF by Avers bears limited risks as the group is highly cash generative and typically these loans are cash covered. The banks' relatively high non-loan exposures, ranging from 30% to 40% of total assets for Chelind, PSCB and LB and over 80% for Avers at end-1Q19, are positive for their asset quality as these were mostly represented by interbank placements and securities with relatively high credit quality (rated 'BB' and above).

 

Profitability is robust at Chelind, PSCB and LB with return on average assets of 2%-3% in 2018. Avers' performance was more moderate, at 1.6%. Profitability is supported by healthy net interest margins - 7% at Chelind and PSCB, a high 9% at LB, but a more moderate 4% at Avers - strong fee income generation (especially at PSCB and LB) and low impairment charges.

 

Capitalisation is comfortable at Chelind (regulatory Tier 1 capital ratio of 16% at end-1H19) and Avers (28%) and more moderate at PSCB and LB (around 11% for both), but supported by robust earnings generation (ROAE of above 15%). These ratios are also well above the regulatory minimum level of 8.125% including buffers.

 

Funding and liquidity is healthy at all banks. Chelind, PSCB and LB rely mostly on granular retail deposits (about 70% of end-1Q19 liabilities), which are price-sensitive, but have proven to be sticky through the cycle. Avers is funded predominantly by related parties, including TAIF, but these deposits have also been stable/predictable. Liquidity buffers were solid across the board covering 88% of customer accounts at Avers and 30%-40% at the other three banks.

 

SUPPORT RATINGS AND SUPPORT RATING FLOORS

 

The banks' Support Ratings of '5' and Support Rating Floors of 'No Floor' reflect their limited market shares and systemic importance, as a result of which support from the Russian authorities cannot be relied on, in Fitch's view. Support from the banks' private shareholders is also not factored into the ratings.

 

RATING SENSITIVITIES

Upside for the ratings is currently limited given the banks' narrow franchises. Downward pressure could result from large loan losses eroding banks' capital, or a considerable increase in risk appetite. Avers' ratings could be also downgraded if the current benefits of cooperation with TAIF diminish, resulting in weaker profitability and higher-risk asset exposures.

 

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entities, either due to their nature or the way in which they are being managed by the entities.

 

For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg.

 

Novosibirsk Social Commercial Bank Levoberezhny, PJSC; Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Short Term Issuer Default Rating; Affirmed; B

; Local Currency Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Viability Rating; Upgrade; bb

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

Primsotsbank; Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Short Term Issuer Default Rating; Affirmed; B

; Viability Rating; Upgrade; bb

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

Bank Avers; Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Short Term Issuer Default Rating; Affirmed; B

; Local Currency Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Viability Rating; Upgrade; bb

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

PJSC Chelindbank; Long Term Issuer Default Rating; Upgrade; BB; RO:Sta

; Short Term Issuer Default Rating; Affirmed; B

; Viability Rating; Upgrade; bb

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF