Fitch revises outlook on VTB to negative
Azerbaijan, Baku, Jan. 16 / Trend /
Fitch Ratings has revised the Outlook of JSC VTB Bank and five of its subsidiaries to Negative from Stable and affirmed the 'BBB' Long-term Issuer Default Ratings (IDR), Fitch Ratings said today.
The Negative Outlook on VTB reflects the planned privatisation of the bank, which, coupled with its more limited policy role (compared to VEB) and somewhat lower systemic importance (relative to Sberbank), are in Fitch's view likely to result in a marginally lower probability of government support over the medium term.
The revision of the Outlook also takes into account possible support 'fatigue' with respect to VTB following substantial assistance provided to the bank in recent years, in particular following the acquisition of Bank of Moscow ('BBB'/Negative) in 2011-2012, and the tail risk of significant losses at the bank given weaknesses in corporate governance and sometimes aggressive risk management.
The latest version of the Russian government's privatisation programme, approved in June 2012, provides for the reduction in the government's stake in VTB to 50% plus one share (from the current 75.5%) by end-2013 and a full exit by 2016. In Fitch's view, it will probably be challenging to meet the former target this year given current market conditions, and the agency believes that the state may still retain a minority stake, rather than fully exit, by 2016. Nevertheless, the agency believes the government now has a firmer intention than previously to proceed with the bank's privatisation, as market conditions allow.
The 'BBB' Long-term IDRs of Sberbank, VEB and VTB continue to be underpinned by Fitch's view of the high probability of support from the Russian authorities, in case of need, given the current majority state ownership of the three banks (50%+1 share in the case of Sberbank; 100% for VEB); the systemic importance of Sberbank and VTB, and VEB's policy role as a development bank; the track record of capital and funding support for the three institutions; and the close association between the authorities and the banks (in particular at VEB).
The Long-term IDRs and debt ratings of VEB and VTB would also be downgraded if the Russian Federation ('BBB'/Stable) was downgraded. A downgrade of Russia would also likely result in a downgrade of Sberbank as it would probably negatively impact both the bank's 'BBB' SRF and its 'bbb' VR.
The affirmation of VTB's VR reflects only minor changes in its stand-alone risk profile since the last rating action in July 2012. The bank's main issues remain its moderate capitalisation (Fitch gives zero equity credit to recently placed perpetual bonds, although this moderately improved regulatory and Basel ratios); concerns about market risk appetite/tolerance, albeit management has made certain progress in reducing proprietary equities positions; weak quality of earnings, and the still high level of credit risk in the bank's corporate loan book and other asset exposures. At the same time, the rating also considers the bank's broad franchise, currently adequate liquidity and moderate refinancing risk, and the consistently solid performance of the bank's retail subsidiary, VTB24.
VTB's VR could be upgraded if capitalisation and performance strengthens and asset quality improves. However, the rating could be downgraded if there were further credit or market driven losses resulting in increased pressure on the bank's solvency.
The ratings of four VTB bank subsidiaries - VTB24, Bank of Moscow (BoM), VTB Capital plc. (VTBC) and VTB Bank (Austria) (VTBA) - and of the leasing subsidiaries of all three banks - Sberbank Leasing, VTB Leasing and VEB Leasing - are equalised with their parents, reflecting their ownership, generally high integration, the track records of support, common branding (with the exception of BoM) and generally moderate/small size relative to parent institutions.
The Negative Outlooks on the Long-term IDRs of VTB's subsidiaries reflect that on the parent. Any changes in parent bank IDRs would likely also be reflected in the IDRs of the subsidiaries.
VTB24's VR is underpinned by its strong retail franchise, robust profitability, strong liquidity and very limited debt. However, VTB24's VR is closely linked to that of its weaker parent given the relatively high degree of fungibility of capital and liquidity between the two entities.
An upgrade of VTB24's VR would therefore likely require an upgrade of VTB's VR, as well as continued strong performance of VTB24's retail business. A downgrade of VTB's VR could result in a downgrade of VTB24's VR.
VTB Bank (Azerbaijan) was officially opened on Nov. 23, 2009. Currently, 51 percent are owned by the Russian side (VTB Bank), 48.99 and 0.01 percent - Azerbaijani shareholders ("AtaHolding" and a private person).