News

07.05.2010

Fitch rates Russia's Credit Europe Bank 'BB-'; Outlook stable

Fitch Ratings has assigned Russia's Credit Europe Bank Ltd (CEBR) a Long-term Issuer Default Rating (IDR) of 'BB-' with a Stable Outlook. A full list of assigned ratings is provided at the end of this commentary. CEBR's IDRs are underpinned by potential support from its parent bank, the Netherlands-based Credit Europe Bank N.V. (CEB, rated 'BB'/Stable). CEBR's Individual rating reflects its relatively small size, weak funding profile, high degree of balance sheet concentrations, a high share of foreign currency lending in the corporate book and a high level of unsecured lending in both the retail and corporate books. However, it also considers CEBR's expertise and successful track record in retail lending and considerable loss absorption capacity, which is supported by strong internal capital generation.

Unsecured lending accounted for a considerable 39% of the corporate loan book and a high 48% of the retail book on a net basis at end-2009. Exposure to top 20 borrowers accounted for almost 70% of corporate loans (including SMEs) and 139% of equity.

Non-performing loans (NPLs, defined as loans overdue for over 90 days) increased to 7% of gross loans at end-2009 from 4.5% at end-2008. In addition, 2.5% of gross loans were renegotiated. However, the current level of capitalisation (regulatory ratio of 24.03% at end-Q110) provides CEBR with considerable loss absorption. Fitch estimates that, at end-Q110, CEBR could have more than doubled its statutory loan impairment reserves to about 32% of its gross loans from the current level of 15%, without breaching its minimum regulatory capital requirement of 10%. Wholesale funding accounted for a high 61% of total liabilities at end-2009 while domestically sourced customer deposits represented only 19%. Customer deposits sourced abroad via third parties (mostly related entities) accounted for another 19% of liabilities but are, in Fitch's view, less stable than domestic deposits. Parent funding accounted for 25% of liabilities at end-2009.

The liquidity position of CEBR is supported by parent funding (up to the maximum of EUR750m). Following the repayment of a Eurobond in mid-April 2010, CEBR had about RUB10.5bn in cash and equivalent and about RUB1.6bn of available for repo and unpledged securities. Fitch expects CEBR's liquidity position to improve further following a Eurobond issue in mid-May 2010. CEBR (former Finansbank Russia Ltd.) is a small commercial bank with a strong retail focus. CEBR is controlled by CEB which is part of Credit Europe Group (CEG). CEG is part of a larger

FIBA Holding A.S. (FIBAH), a Turkish conglomerate owned by Husnu Ozyegin, a prominent Turkish banker and businessman.

CEBR's ratings have been assigned are as follows:

Long-term foreign and local currency IDRs: 'BB-'; Outlook Stable

National Long-term rating: 'A+(rus)'; Outlook Stable

Short-term foreign currency IDR: 'B'

Individual Rating: 'D'

Support Rating: '3'

In Fitch's rating criteria, a bank's standalone risk is reflected in Fitch's Individual ratings and the prospect of external support is reflected in Fitch's Support ratings. Collectively these ratings drive Fitch's Long- and Short-term IDRs.

Applicable criteria, ' Global Financial Institutions Rating Criteria', dated 29 December 2009, are available on www.fitchratings.com.

Additional information is available at www.fitchratings.com.