Fitch IBCA Ratings - Press Releases - More Russian Bank Ratings Reviewed

More Russian Bank Ratings Reviewed

Fitch IBCA-London-27 May 1999: Fitch IBCA, the international rating agency, has today taken further rating actions for some of the Russian banks it rates. The list of affected banks and their ratings follow.

Uneximbank (Unexim): Long- and Short-term ratings downgraded to 'D' from 'C'.

Menatep Bank (Menatep): Long- and Short-term ratings downgraded to 'D' from 'C'. The bank's ratings are subsequently withdrawn, including its Individual rating of 'E' and Support of '5T'.

Mosbusinessbank (MBB): ratings withdrawn at 'C' Long-term, 'C' Short-term, 'E' Individual and '5T' Support.

Bashcreditbank (BCB): Individual rating has been affirmed at 'D/E' and removed from RatingAlert negative. The Individual ratings of 'D/E' for Moscow Business World Commercial Bank (MDM Bank) and Probusinessbank remain on RatingAlert positive, until further review.

In line with the actions taken above, Fitch IBCA has also reviewed its issue ratings of some Russian banks. UNEXIM International Finance BV's senior unsecured bond issue of USD 250 mln and FRNs issue of USD 50 mln due 2000, guaranteed by Unexim, have been downgraded to 'D'. Ratings that remain unchanged include those for Alfa-Russia Finance BV's senior unsecured debt issue of USD 175 mln under USD 300 mln EMTN programme, guaranteed by Alfa-Bank, at 'CC', and SBS-AGRO Finance BV's senior unsecured notes issue of USD 250 mln due 2000, guaranteed by SBS-AGRO Bank, at 'C'. The rating action in respect of Unexim reflects its de facto default on its Eurobond and FRNs earlier this year. Although it remains in possession of its banking licence, default on the rated unsecured senior debt obligations, in Fitch IBCA's opinion, represents a failure of Unexim as an entity. The 'D' rating of its issues suggests a recovery rate of less than 50% for creditors of the Eurobond and FRNs. The downgrade and withdrawal of Menatep's ratings follows the Central Bank of Russia's (CBR's) actions in revoking its banking licence and filing a lawsuit for Menatep's bankruptcy.

Fitch IBCA's withdrawal of MBB's ratings reflects the acquisition of the bank by Bank of Moscow and the effective merger process between Bank of Moscow and MBB, which is underway. The agency understands that nearly all of MBB's business has been moved to Bank of Moscow and that its branch network will gradually be taken over by its new owner. It is expected that MBB's name will disappear over time from the Russian banking market, following completion of restructuring.

Removal of BCB's Individual rating from RatingAlert negative recognises the fact that the bank appears to have weathered the crisis and continues to operate. It is likely to have received support from the Republic of Bashkortostan, its sole owner. BCB is in the process of having its 1998 IAS accounts prepared and audited.

CBR WITHDRAWAL OF BANKING LICENCES IS A WELCOME STEP

Last week's move by the CBR to withdraw 12 banking licences is a welcome step towards restructuring the ailing Russian banking sector and clarifying the situation with the failed banks. However, only one bank on the list, Menatep, represents the group of formerly large and politically connected private banks. The rest are medium-sized banks of little consequence to the banking system as a whole. The reasons for the withdrawal of Menatep's banking licence cited in CBR's statement included the bank's failure to meet its financial obligations to creditors and to make timely tax payments. However, a number of banks remain in possession of a banking licence, which would fall under the same criteria. Among those rated by Fitch IBCA, these include Unexim, SBS-AGRO Bank, Rossiyskiy Kredit Bank, Dialogbank, Mezhcombank and Toribank. The agency does not expect all of these banks to have their licences revoked by the CBR. This will still depend on the support the CBR may be willing to provide to some of them (either directly or through ARKO, the Agency for Restructuring Credit Organisations), and the banks' own success in their negotiations with creditors on restructuring their liabilities. Negotiations have, thus far, been inefficient and frustrating for many foreign creditors of the Russian banks. For example, both Alfa-Bank (Alfa) and National Reserve Bank (NRB) - the "surviving" rated banks with sizeable external debt obligations - have moved closer to restructuring some of these liabilities, the process is not yet complete. The forthcoming payment of a USD 18.2 mln coupon on Alfa's issue under its EMTN programme puts pressure on the bank to finalise the restructuring of its USD 77 mln US commercial paper programme in the near future.

All Russian banks' Individual ratings remain low. MDM Bank and Probusinessbank are the prime potential candidates for an upgrade of their Individual rating, although much will depend on their audited results under IAS. Concerns remain about the impact on these banks' financial standing of the size of loan loss provisions, realised and unrealised losses on their securities portfolios (of, mainly, stocks and regional bonds) and potential foreign exchange losses.

Today, Fitch IBCA has also released a detailed comment "The Banking Crisis Aftermath". The comment looks at the effectiveness and efficiency of measures undertaken by both Russian banks and the authorities in the past few months and analyses the trends in the Russian banking sector since August 1998. In the comment, the agency highlights five groups of banks that have survived the financial crisis. These include: a) state-owned banks, b) banks that have been strongly backed by their shareholders, c) regional banks owned by, or linked to, local authorities or major local industrial companies, d) medium- and small-sized banks in Moscow, and e) some large private banks. Furthermore, the comment examines the likely impact of the crisis on the 1998 results of those banks that survived, and analyses their prospects in 1999.

Fitch IBCA shall continue to monitor the developments in the Russian banking sector, where it expects to see more decisive actions by the CBR and ARKO in respect of bank restructuring. Hence, more downgrades and/or withdrawals of ratings are likely in relation to bankrupt banks. The agency also expects the Individual ratings of some other banks to improve over the course of the year, should their capital be boosted to adequate levels and their operational prospects become more certain.

Contact: Natasha Chubar; Sophie Childs, London Tel: +44 (0)171 417 4222

NOTES: FITCH IBCA'S SUPPORT AND INDIVIDUAL RATINGS FOR BANKS -- Fitch IBCA's Individual ratings assess how a bank would be viewed if it were entirely independent and could not rely on external support. Its Support ratings deal with the question of whether a bank would receive support from its owners or from the state if it were to get into difficulty. These ratings are not debt ratings but rather, respectively, an assessment of the intrinsic strength of a bank and of any level of outside support that may, or may not, be available to it.

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