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Moody's assigns Ba2 ratings to Eximbank of Russia; outlook negative

Moody's Investors Service (Moody's) has today assigned the following first-time ratings to Eximbank of Russia (Roseximbank): Ba2 long-term local- and foreign-currency deposit ratings; Not Prime short-term local- and foreign-currency deposit ratings, a baseline credit assessment (BCA) of b2 and adjusted BCA of ba2. All the bank's long-term ratings carry a negative outlook. Moody's has also assigned a Counterparty Risk Assessment (CR Assessment) of Ba1(cr) / Not-Prime(cr) to Roseximbank.

According to Moody's, Roseximbank's ratings benefit from (1) the bank's status as a fully owned subsidiary of Vnesheconombank (VEB, Ba1 negative); (2) its strategic importance for the Russian government as an exports-focused lender; and (3) a track record of support from the Russian government and VEB.

Roseximbank's b2 BCA takes into account (1) the bank's substantial, albeit rapidly decreasing levels of problem loans; (2) still high, albeit decreasing concentrations in the loan portfolio; (3) significant capital support from the Russian government provided in 2014-15; and (4) strengthening funding and liquidity positions.


Roseximbank's status as the government's owned and specialised lender is essential to the bank's credit profile. The Russian government executes control over the bank through VEB and the Export Insurance Agency of Russia (EXIAR), which combined own 100% of Roseximbank's shares, and maintain a strong presence on the bank's Board. Roseximbank's ratings also benefit from its increasing importance to the Russian government as reflected in its recently changed policy mandate. The bank has become an important part of the government's Centre for Credit and Guarantee Support of Exports, which was established on the basis of VEB Group including VEB's subsidiary EXIAR, in 2014. In its new role as a specialised lender, Roseximbank is responsible for lending aimed to facilitate non-energy exports across a wide range of Russian industries.

The bank's policy mandate as the conduit for the government's export support ensures ample capital support from the Russian authorities and VEB. As a result of recent capital injections in 2014-2015, the bank posted a 21.7% total capital adequacy ratio (CAR, Basel I) as of year-end 2014, while its regulatory CAR was 74.2% (the regulatory minimum is 10%) as at end-August 2015. Although the bank will substantially increase new lending in 2015-2017, Moody's expects that the bank's capital will be maintained at adequate levels in the medium term. This will be supported by new government's capital injections, which will likely total RUB20 billion in 2016-2017.

The bank's credit profile reflects a still substantial, albeit diluting, level of problem loans (defined in line with Moody's standard definition as all corporate impaired loans and 90 days overdue retail loans) largely inherited from the bank's lending activities before the recent change in its status. The bank has posted problem loans-to-gross loans ratio of 36% as of year-end 2014 (2013: 31%). The bank's loan book has been highly concentrated with the 20 largest borrowers accounting for around 90% of Tier 1 capital as of H1 2015. Nevertheless, these problem loans were adequately provisioned, because the bank's loan loss reserves-to-problem loans ratio accounted for around 76% as of year-end 2014, while around 44% of the problem loans were covered by government guarantees.

The aforementioned pressures will be mitigated by the anticipated substantial growth in the loan book in 2015-2017, which will help to dilute the problem loans and decrease single-name concentrations. Roseximbank's medium-term development strategy envisages significant levels of new lending over the next three years, largely to Russian non-energy exporting enterprises from the secondary sector. However, the rapid growth in new lending will likely lead to a growth in problem loans over the next 2-3 years, as soon as the new loan portfolio is seasoned. A substantial part of new lending will be under EXIAR insurance and/or guaranteed by the government, providing some reassurance regarding the repayment of potential problem loans.

Moody's believes that the bank's recent loss-making performance will be addressed by improving loan book quality and an increasing net interest margin over the next 12-18 months. In 2014, the bank's return on average assets stood at -17.4% (2013: -2.9%), according to IFRS statements, which resulted from recognition and provisioning of its abovementioned inherited problem loans. The bank expects to return to marginal profitability in 2015 and to maintain these levels in the years to come, because the bank is largely considered to be the government operative arm supporting export-oriented industries, rather than an income-generating commercial bank.

As of 1 September 2015, the bank's liabilities were largely represented by financing provided by other banks, which accounted for 57% of non-equity funding. The bank is not considered a retail deposit-taking institution and does not have a licence to operate in the foreign-currency exchange retail market. Going forward, the bank will increasingly rely on the government's stable funding provided directly and indirectly, via VEB and other sources. Nevertheless, the bank is considering an increase in its public debt in the medium term, which may pose interest risks as a result of vulnerable Russian market conditions, while its access to global markets is hampered owing to recent US and EU sanctions imposed on VEB and its subsidiaries, including Roseximbank, in connection with the crisis in Ukraine.

The bank's liquidity position is strong, with liquid assets-to-total assets ratio accounting for around 46% as of end-August 2015. However, Moody's anticipates that the bank's liquidity cushion will be utilised to increase the loan portfolio until year-end 2015. As such, the bank's reliance on liquidity support from parental VEB and the Central Bank will likely grow.


The negative outlook on Roseximbank's deposit ratings takes into account the negative outlook on its parental VEB issuer ratings and the sovereign debt rating, reflecting also adverse operating environment in which the bank currently operates.


Upward rating pressure is unlikely in the near term owing to the deterioration in the Russian operating environment, which puts pressure on VEB's affiliate support levels. The rating outlook could stabilise in case of stabilisation of VEB rating outlook and the sovereign debt rating. Downward pressure could arise from a downgrade of the government debt rating and a consequent downgrade of VEB ratings, given the strong linkages with Roseximbank. Downward pressure could also be exerted on the ratings in the event of the bank's inability to meet the targets under its new strategy aims to boost government-supported exports, which could lead to further weakening of the bank's asset quality and deteriorating capitalisation metrics.


The rating action is based on Roseximbank's audited IFRS accounts for 2014, 2013 and 2012, statutory accounts as at August 2015, and information provided by the bank's management.


The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in, Moscow, Russia, Eximbank of Russia reported (audited IFRS) total assets of RUB14.7 billion (approximately USD260 million) and shareholder equity of RUB3.9 billion (USD70 million) as at end-December 2014. The bank's net losses totalled RUB2.3 billion (USD41 million) in 2014.


For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alexander Proklov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
JOURNALISTS: 44 20 7772 5456
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Yves Lemay
MD-Banking & Sovereign
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454