Standard & Poor’s Ratings Services has assigned its ‘CCC/C’ long- and short-term counterparty credit and certificate of deposit ratings to Russia-based International Bank of Saint-Petersburg (IBSP). The outlook is stable. At the same time, Standard & Poor’s assigned its ‘ruB+’ Russia national scale counterparty credit rating to IBSP.
“The ratings on IBSP reflect the bank’s high business and financial risks,” says Standard & Poor’s credit analyst Irina Penkina. “The bank’s primary activity – securities dealing in the Russian market – is highly volatile.”
Capitalisation and profitability are modest, given the bank’s high operating risks, while funding is very concentrated. Asset quality is adequate, however, given the predominance of Russian state bonds on the balance sheet. A strategy to diversify the business profile of the bank should reduce operational and financial vulnerabilities in the future.
The bank is developing a corporate banking capability, but it is only in its initial stages and lags far behind securities dealing in terms of asset allocation and revenue generation. Corporate lending is considered by management to be a source of less volatile revenues, but it is a challenging strategy in a highly competitive area.
Capitalisation is deemed insufficient to protect the bank against high market risks, but a planned new share issue would help improve the bank’s capitalisation to a more comfortable position.
IBSP’s asset quality is considered satisfactory, as the largest portion of assets is placed in Russian government bonds. The loan portfolio is mainly short term and has not been tested under adverse market conditions.
“Given the high-risk nature and concentration of the bank’s activities, it is crucial that IBSP attains a strong level of capitalisation to absorb potential losses in the unpredictable Russian securities market,” says Penkina. At present, the bank is highly vulnerable to market conditions, and – to a large extent – is dependent on a relatively small number of customers. “A strengthening financial profile with more reliance on core sustainable revenues, together with a deepening customer base and diversification of profitable operations, would help to improve the bank’s creditworthiness,” she adds.