Standard & Poor’s Ratings Services has assigned its ‘CCC/C’ counterparty credit ratings to Russia-based Bank Ingosstrakh-Soyuz (BIS). The outlook is stable. At the same time, Standard & Poor’s assigned its ‘ruB+’ national scale rating to the bank.
The ratings on BIS reflect high business and financial risks, including excessive concentrations in its loan portfolio and funding base on related companies; low business franchise outside of its related customers; the short track of record of the current management team; and a weak core earnings base. “The ratings also reflect the vulnerable operating environment in Russia,” says Standard & Poor’s credit analyst Irina Penkina.
“Business prospects could be developed from its planned merger with three sister banks; however, operational risks involved with this merger could be high,” she adds. The merger is planned to be concluded by the end of 2003, which will result in a 220% increase in BIS’ assets to Rb18bn (US$590mn), and a 200% increase in equity to Rb3.5bn (both figures according to Russian accounting standards).
Since the end of 2002, BIS has been in the process of merging with three other banks controlled by Basic Element – Avtogazbank (headquartered in Nizhniy Novgorod), Sibregionbank (Irkutsk), and People’s Savings Bank (Moscow). BIS plans to penetrate the mid-sized corporate market for growth after the reorganisation. Given the current management team’s short track record, successful business development will be a challenging objective in a competitive market.
“The stable outlook reflects Standard & Poor’s expectations that BIS will complete legal and operational integration in 2003, and start to broaden its customer base,” adds Penkina. “The bank’s success in diversifying its lending and funding resources, increasing core revenue streams, and increasing capital to support growth ambitions will be important factors driving the ratings on BIS in the future.”