Standard & Poor’s Ratings Services has assigned its ‘B-/C’ long- and short-term counterparty credit and certificate of deposit ratings to Russia-based Promsvyazbank JSCB (PSB). The outlook is stable.
“The ratings on PSB are supported by the bank’s good corporate franchise in the developing Russian commercial banking market, solid profitability stemming from good quality revenues, and the growing economy,” says Standard & Poor’s credit analyst Irina Penkina. “In addition, the bank benefits from supportive shareholders.”
These positive factors are somewhat mitigated by the bank’s funding weaknesses, a concentrated loan portfolio, and still-risky operating environment in Russia. Capitalisation is currently considered adequate, but due to strong asset growth has come under downward pressure.
PSB ranks among the 20 large private sector Russian banks, with total assets of US$1.4bn, and adjusted equity of US$195mn at year-end 2003. On the back of the rising economy, following the post-1998 crisis, the bank succeeded in expanding and diversifying its customer base, and has established a good presence in the corporate banking market. A proactive strategy, combined with an experienced and stable management team and supportive shareholders are important positive elements in the development of the bank’s business profile.
Over the past three years, PSB has recorded good levels of profitability and is building a more solid platform of revenues than many of its peers, which relied more on market-sensitive income in 2003.
PSB relies heavily on corporate and wholesale resources for funding. Although it is less concentrated than many of its Russian peers, PSB’s funding lacks diversification, particularly with regard to its range of resources and longer-term maturities.
The bank’s asset quality is adequate with low levels of problem loans. It has nevertheless experienced strong growth in lending in the past three years and, like other Russian banks, is vulnerable to high credit risks, stemming from large single-party concentrations, exposure to speculative-grade counterparties, and the still-risky operating environment. Strong loan growth has placed downward pressure on capitalization in the past three years; however, with an adjusted common equity-to-assets ratio of 13.7% at year-end 2003, it is considered adequate.
“The stable outlook reflects Standard & Poor’s expectations that the bank will continue to expand and diversify its customer base, while keeping costs and credit risks under tight control,” adds Penkina.
Improvements in the volatile operating environment and a sustained calming of the current market turbulence impacting the Russian banking market could help provide the conditions for an outlook revision to positive. The maintenance of capitalisation to allow the bank’s continued development through internally generated or newly injected equity would also be a positive ratings factor. “The ratings on the bank could be lowered, however, if capitalization is diluted, funding weaknesses are not addressed, and the quality of earnings and assets deteriorate,” she adds.