The performance of the largest banks in Kazakhstan, Russia, and Ukraine (KR&U) has strengthened in the first half of 2006, benefiting from a favorable macroeconomic environment, evidenced by good GDP growth forecast for 2006 of 10.6% in Kazakhstan, 6.5% in Russia, and 5.6% in Ukraine. This is likely to continue in 2007. Although the upgrades of the foreign and local currency sovereign credit ratings on Russia and Kazakhstan in September 2006 and November 2006, respectively, and the affirmation of the sovereign credit ratings on Ukraine in August 2006 did not directly lead to upgrades of the banks in those countries, they do indicate the diminishing, although still relatively high, economic risks.
Key trends that have supported the strengthened performance of the major banks, and resulting positive rating actions, are:
The development of the banks' franchises;
Differentiation strategies with a focus on certain market and/or geographic segments;
The diversification of revenues and funding;
The reduction in concentration levels; and
Better ownership and information transparency, and strengthening risk management.
Although shareholders' capital injections have largely lagged asset growth, thereby constraining the banks' development, the banks with supportive shareholders have been able to advance their commercial development at the expense of worse capitalized players.
Barring any marked economic downturns in the short to medium term, Standard & Poor's Ratings Services expects banks in KR&U to maintain overall performance at levels consistent with current ratings. Positive and stable outlooks on all rated banks in KR&U reflect our opinion that the positive rating momentum will continue in 2007.
Major banks choose differentiation strategies to succeed in an increasingly competitive environment
Despite the favorable macroeconomic environment, competition in the banking sectors of KR&U has intensified. The largest players have been increasingly challenged by midsize banks, which are slowly but steadily advancing their market positions and occupying profitable niches of consumer and mortgage banking, brokerage, and small business lending. Although major KR&U banks are pursuing universal banking models, they do differentiate and focus on certain customer segments, business lines, and geographic markets. They are progressively moving from erratic opportunistic growth toward more focused, strategy-driven development.
Major Russian and Ukrainian banks are maintaining their domestic focus, tapping into the low banking penetration of large populations and a growing number of small and midsize enterprises (SMEs). On the contrary, the largest Kazakh banks, and Russian Vneshtorgbank (JSC), are pursuing expansion strategies in the Commonwealth of Independent States (CIS) region, with a medium-term goal of generating up to 15%-20% of revenues outside their home markets. Although we consider regional expansion strategies to be riskier than purely domestic ones, if properly executed, they can benefit the banks in terms of higher medium-term returns.
Another market trend of 2006, building on 2005, is an increasing share of SME and retail banking at the largest KR&U banks, which started out as corporate banks. This is due to a lack of good quality lending opportunities and tight margins in the corporate sector, on the one hand, and, on the other, because of an explosive growth in the retail sector boosted by growing wealth dynamics and financial leverage of households. Consumer loans and mortgages have progressively reached around one-half of total loans at Ukraine-based Ukrsotsbank OJSC (USB) and Russian Rosbank OJSC at mid-2006. To succeed in the retail sector, major banks focus on different customer segments and/or product lines. Halyk Savings Bank of Kazakhstan is targeting mass-market retail customers; International Moscow Bank (IMB), middle class customers; Rosbank, consumer lending; and Bank TuranAlem (BTA)--through its wholly owned subsidiary BTA Ipoteka--mortgage lending. Vneshtorgbank has separated its retail and SME businesses in a specialized subsidiary, Bank VTB 24. Another differentiation strategy is more sophisticated customer service and a personalized approach, which are vital in the markets with low brand loyalty.
Improvements in information transparency and disclosure
Levels of transparency and disclosure by major banks in KR&U have advanced in 2006; however, there is still considerable room for improvement. The increased disclosure has been driven by the need to raise capital on the international markets and plans to perform IPOs on international exchanges. International investors increasingly require better transparency and reward banks with higher disclosure levels. It was also used as a differentiation strategy to distinguish them from the competition. The banks with the highest disclosure among the largest Russian banks include MDM Bank, Alfa Bank, and Rosbank. The weakest is Bank Uralsib (OJSC). Standard & Poor's notes marked improvements in the disclosure of beneficial bank owners for Russian and Kazakh banks, which was done either through banks' Eurobond prospectuses and/or annual financial reports. A positive recent development is the disclosure of significant minority shareholders. Major banks also improved disclosure on their risk management policies. The quality of information has also been significantly enhanced; banks are no longer simply supplying a skin-deep description of their risk environment, but seek to provide investors with elaborate information on its specifics, including political and regulatory risks, as well as a detailed overview of risk-hedging mechanisms.
The disclosure of related-party transactions and transactions with companies from the same group remains one of the weakest areas, however.
Focused strategies and favorable cyclical factors translate into improved profitability and efficiency
The first half of 2006 saw many banks in KR&U build on their strong performances in 2005. Improvements in profitability underpinned a number of rating and/or outlook upgrades in 2006. Standard & Poor's recognizes, however, that some of the improvements continue to be cyclical, fueled by:
Buoyant macroeconomic conditions;
Good asset quality;
A growing demand for banking services;
Favorable securities market trends; and
Cheaper opportunistic international debt funding.
We expect the positive trend to continue in the medium term as more focused differentiation strategies of major players should result in higher profitability and efficiency, and due to favorable cyclical factors.
The banks' financial performance continues to vary owing to different business mixes, diverse cost bases, and revenue productivity of assets. The highest ROA above 4% was reported by Uralsib, Gazprombank, and BTA, and the lowest below 2% by Rosbank and ATF Bank (see chart 1). Nevertheless, the performance of Russian banks with a higher ROA is significantly skewed by high dependence on volatile securities trading gains, which undermine earnings quality and call into question long-term performance sustainability (see chart 2). The rally of the Russian securities markets continued until early May 2006; however, a 30% drop in the main RTS index in May and June is likely to negatively affect the second-half 2006 results of many Russian players.
Chart 1
Chart 2
Net interest margins of most large banks in KR&U slightly advanced in the first-half 2006, despite constant competitive pressures, declining interest rates, and revenue generation lagging rapid asset growth (see chart 3). This is especially true for banks with a significant share of higher yielding retail and SME business, as well as banks whose funding costs on international capital markets continued to diminish. The banks' ability to manage the balance between interest revenues and funding costs is crucial for their future profitability. Fee and commission income as a percentage of total revenues remained low, less than 15% on average, as banks are only gradually rolling out their cross-selling targets and developing asset management and insurance operations.
Chart 3
Generally, revenue growth outpaced cost growth, improving efficiency across the spectrum of rated banks. Banks reported better cost-to-income ratios in the first-half 2006 compared with 2005 (see chart 4), despite ongoing investments in distribution network expansion, staff, IT systems, strategy, and risk management consulting. Although large in their home markets, major banks in KR&U still lack meaningful economies of scale and are dependent on high concentrations of revenues on clients, geographic regions, and individual products. Onerous provisioning expenses (an average of around one-fourth of net operating income before loan loss provisions) continued to negatively affect the bottom-line results, especially of Kazakh banks.
Chart 4
Shortage of shareholder capital injections constrains banks' development
The capitalization of major banks in KR&U remained barely adequate to support their aggressive growth. There was no meaningful improvement or worsening in capitalization ratios of major banks in KR&U in first-half 2006, with the exception of a significant deterioration at Gazprombank (see chart 5). In Standard & Poor's opinion, given the high economic and industry risks in KR&U, strong levels of core capital are crucial to provide a cushion against unexpected shocks in volatile environments and in light of high loan concentrations. Barely adequate capitalization ratios are seen as one of the major weaknesses of many banks in KR&U, thereby limiting their rating upgrade potential.
Chart 5
Slight improvements in capitalization were mostly supported by retained earnings. Shareholders of only four banks--BTA, USB, VTB and ATF--injected fresh capital in first-half 2006. Although universally shareholders understand the need to inject fresh capital to sustain the competitive growth of their banks, many of them are either unable or reluctant to see their banks highly capitalized. Their investment capability relies on the commercial success of their industrial projects and is increasingly dwarfed by banks' voracious need for capital. Due to the lack of well-developed capitalization strategies, owners' capital injections are often done infrequently and in large sums, creating volatility in banks' capitalization ratios.
As the banks' domestic owners are not planning to sell their controlling stakes in the medium term, given good growth prospects in the banking sector, they are offering minority stakes in their banks to foreign investors through direct acquisition, and international and domestic IPOs. Halyk and Kazkommertsbank (JSC) (KKB) are expected to finish their IPOs by year-end 2006, and a few other major players indicated their intention to list in the next two years. In addition, repeating the experience of large Kazakh banks, Russian and Ukrainian banks are increasingly turning to more complex and lower quality capital instruments, such as preferred stock, subordinated debt, and hybrid capital issues, to finance their development.
Upward rating trend is likely to continue in 2007
Positive rating actions continue to reflect ongoing improvements in KR&U banks' commercial and financial profiles, supported by favorable macroeconomic conditions. Since June 1, 2006, rating actions have been positive: none of the banks have been downgraded or have experienced an outlook revision to negative; 18 were upgraded; the outlooks on six banks were revised to positive; and three banks are currently on CreditWatch with positive implications. In addition, nine new ratings were assigned. Despite these positive rating actions, banks in KR&U remain in the speculative-grade category, with the exception of three banks, Vneshtorgbank, Bank VTB 24, and IMB ((see chart 6).
Chart 6
Upgrades and outlook revisions on the major banks in KR&U can be attributed to:
Improvements in profitability and capitalization (USB, Halyk, ATF, VTB, BTA);
Focused strategy and strengthening commercial position (MDM Bank and Alfa Bank);
Increased ownership by foreign strategic shareholders (IMB, Rosbank);
Greater support from the state (Gazprombank, VTB); and
Lower integration risks (Uralsib)
The likelihood of further upgrades of banks in KR&U in the short to medium term is driven by the banks' longer track record, better diversification, improvements in financials, reduction of concentration levels, and strengthening risk management. Given that economic and industry risks in KR&U are still high, albeit gradually diminishing, further upgrades of sovereign credit ratings will not necessarily trigger upgrades of the domestic commercial banks. The ratings on most banks in KR&U are likely to remain in the speculative-grade category in the medium term, unless these banks are acquired by foreign strategic shareholders with developed Central and Eastern European strategies, or we see dramatic improvements in the economic and industry risks under which they operate, alongside a strengthening of their own stand-alone creditworthiness.
Issuer Review
Table 1
Company/Counterparty credit rating/Comments
Country
Analyst
Alfa Bank ( BB/Stable/B )
The outlook is stable. This reflects Standard & Poor's expectation that Alfa Bank will continue to build up its franchise, and improve its financial profile, benefiting from Russia's favorable market conditions. We would consider an upgrade if the bank improves its efficiency, strengthens its capitalization, and further diversifies its loan portfolio and funding. Alfa Bank's relatively high capital leverage leaves it vulnerable to a major weakening of the Russian economy or banking sector. Therefore, a negative rating action could follow a worsening in the bank's capitalization ratio, or significant deterioration of its financial standing.
Russia
Ekaterina Trofimova
ATF Bank ( B+/Positive/B )
The positive outlook reflects ATF's improved market position and strengthened capitalization. We expect ATF's business franchise to remain resilient to mounting competition, and its aggressive expansion strategy to be supported by good managerial expertise, adequate risk management, infrastructure, and systems. The ratings could be raised if ATF's domestic franchise continues to strengthen; if Standard & Poor's core capitalization ratios increase; if lending and funding concentrations reduce meaningfully; and if asset quality is maintained at stable levels during rapid loan growth. An inability to manage a rapidly growing domestic franchise, and adverse developments in asset quality and capitalization will be viewed negatively.
Kazakhstan
Annette Ess
Bank TuranAlem ( BB/Positive/B )
The positive outlook reflects BTA's relatively strong financials and good infrastructure, which put the bank in a good position to take advantage of the current positive economic trends and to mature with the market. The bank is adapting to the changing nature of Kazakhstan's banking market, currently characterized by shrinking margins and smaller foreign-exchange gains, through product and revenue diversification. The ratings could be raised if BTA demonstrates a good track record of effectively managing its continued fast loan growth, particularly in riskier external markets; diversifying risk; and addressing its weak core capitalization. Any adverse development on these fronts could be detrimental to ratings. Further improvements in ownership transparency could also be beneficial for the ratings on BTA.
Kazakhstan
Magar Kouyoumdjian
Gazprombank ( BB+/Stable/B )
The stable outlook reflects Standard & Poor's expectation that Gazprom will retain control of the bank, and will continue to support it if needed. Gazprombank's creditworthiness is constrained by its own financial profile weaknesses, and the high economic and industry risks in Russia. Rating factors that could have a positive impact will stem from improvements in the stand-alone credit profile of the bank; these include the scope and profitability of Gazprombank's recurrent commercial business, higher diversification of good quality assets and revenues, higher transparency regarding complex transactions, and improved recurrent profitability.
Russia
Ekaterina Trofimova
Halyk Savings Bank of Kazakhstan ( BB+/Stable/B )
The stable outlook reflects our expectation that Halyk will retain its strong position in the domestic banking market, its core profitability and asset quality will benefit from a favorable macroeconomic environment and projected growth, and its core capitalization will continue to strengthen. At the same time, continuous rapid loan growth and single-name concentrations are expected to prevail. The bank's future growth is expected to be supported by capital increases from current shareholders, from attracting a strategic foreign shareholder and/or debuting with an IPO. The ratings could be raised if the high economic and banking industry risks prevalent in Kazakhstan dissipate, leading to a more stable and solidly built banking system. Halyk could also be upgraded if it significantly reduces its single-name lending and funding concentrations, further improves its asset quality, notably increases its core capitalization, and continues to strength its risk management. A negative development in the Kazakhstan macroeconomic environment, a deterioration of asset quality, and a lowering of capitalization levels and liquidity would lead to a downgrade.
Kazakhstan
Annette Ess
International Moscow Bank ( BBB-/Stable/A-3 )
The stable outlook reflects Standard & Poor's expectation that the ties between IMB and UniCredito will remain strong, and that IMB will benefit from its parent in terms of funding, capital, risk management, and IT. We also expect that IMB will continue its focused expansion in line with strategic goals. The future direction of the ratings will depend on the level of financial and operational support given to IMB by UniCredito, and that its conservative risk profile is maintained in view of the still high-risk Russian banking market. Further changes in the ratings on IMB will also be sensitive to the bank's stand-alone credit profile as well as the development of the operating and economic environment in Russia.
Russia
Elena Romanova
Kazkommertsbank (JSC) ( BB+/Stable/B )
The strong commercial position of the bank among domestic peers and good earnings profile place it in a good position to prosper from economic growth in the country. The presence of the European Bank for Reconstruction and Development should help with corporate governance, funding, and capitalization. The prospect of higher counterparty credit ratings would largely be dependent on reduced concentrations in wholesale funding and lending, stronger capitalization, and the reduction of loan growth. The ratings are also subject to the bank managing its growth (particularly overseas expansion) and maintaining good asset quality, and continuing to keep clear of group investments in industrial concerns. The bank will soon need to address its additional capital needs to support its growth, and an IPO or strategic investor is being considered.
Kazakhstan
Magar Kouyoumdjian
MDM Bank ( BB-/Stable/B )
The stable outlook reflects our opinion that MDM's new strategy and related reorganization will progress smoothly without setbacks, and will positively impact the bank's customer franchise and revenue diversification. MDM's developed infrastructure positions the bank well to benefit from the current positive economic trends and to mature with the market. The prospects for an upgrade depend on: a successful execution of the strategic objectives; a longer track record of good financial performance; a reduction in funding concentrations; and the maintenance of adequate capitalization. A negative rating action might follow if the bank's strategy falters, or if its profitability, asset quality, or capitalization were to deteriorate significantly.
Russia
Ekaterina Trofimova
Rosbank OJSC ( B+/Positive/B )
The positive outlook reflects Standard & Poor's expectation that SocGen's operational and managerial support will intensify in the medium term, positively affecting Rosbank in such areas as funding, risk management, and IT. We also expect that Rosbank will continue its rapid expansion in line with strategic goals. We would consider raising the ratings if SocGen acquires a controlling ownership, or if Rosbank demonstrates its ability to better withstand competitive pressure on profitability and maintains good asset quality. A negative rating or outlook pressure might follow if SocGen's support is not significant; if Rosbank is unable to control the quality of its rapidly growing loan portfolio; or if it fails to reap financial benefits from an enlarged network.
Russia
Ekaterina Trofimova
Ukrsotsbank OJSC ( B/Watch Pos/B )
The long-term rating on USB was originally placed on CreditWatch with positive implications, following the announcement that Italy-based Banca Intesa SpA (Intesa; A+/Watch Pos/A-1) had signed a share purchase agreement with the majority shareholder of USB on the acquisition of 88.55% of the share capital of USB. This is pending regulatory approvals in Italy. If the transaction is not closed by the end of March 2007, Banca Intesa and the sellers of USB may terminate the agreement and be free to pursue other options. If the acquisition completes successfully, the ratings on USB could be raised by a maximum of two notches. Standard & Poor's will assess the strategic importance of USB for Intesa; its operational and financial commitment and support; the revised strategy to be implemented; and the impact of these factors on the stand-alone and final ratings on USB.
Ukraine
Annette Ess
Bank URALSIB (OJSC) ( B+/Positive/B )
The positive outlook reflects our expectation that the enlarged URALSIB will continue to extend its customer base in the context of harsher competition in Russia. The bank's franchise is set to further benefit from regional expansion, larger critical mass, and better cross-selling opportunities throughout the group. The ratings could be raised if the integration process within URALSIB continues without setbacks, and the bank's initiatives to diversify its customer base and business lines are successful. The ratings could come under pressure, however, if the integration process falters, or if the bank's financial or commercial profiles deteriorate significantly.
Russia
Ekaterina Trofimova
Vneshtorgbank (JSC) ( BBB+/Stable/A-2 )
Although government support remains a key rating factor for VTB, Standard & Poor's does not consider VTB to be a 'policy' institution. The bank acts as a competitive commercial bank, although the state has considerable influence over the bank's strategy. Therefore, the stand-alone performance of the bank, together with further improvements in the economic and industry risks that impede the Russian banking system, are likely to drive future rating actions. Substantial improvements in the bank's core earnings and capitalization, along with the successful restructuring and integration of the group's various businesses, could lead to an upgrade. The ratings or outlook on VTB could come under pressure if the bank's asset quality, profitability, or capitalization were to deteriorate significantly. Aggressive expansion will trigger the need for more capital in the short term, and the bank's upcoming IPO and internal capital generation would be crucial factors. Further factors that could place pressure on the banks are: a worsening macroeconomic environment, and, as a result, the accumulation of risks in the securities and loan portfolios.
Russia
Ekaterina Trofimova
Ratings as of Dec. 20, 2006.
Quarterly Rating Activity
Table 2
Rating Changes
Issuer
To
From
Date*
Reason
Upgrades
Kazakhstan
BTA Ipoteka Mortgage Co.
BB-/Stable/B
B+/Stable/B
Nov. 9, 2006
The rating action reflects BTAI's longer track record of successful development, good business growth potential supported by the favorable economic environment, and renewed support from its strategic shareholder, Bank TuranAlem.
Joint Bank Lariba Bank (JSC)
B/Stable/B
B-/Positive/C
July 18, 2006
The upgrade reflects consistently strong capitalization and profitability, a tight focus on its niche franchise, and improving lending diversification with a meaningful decrease in its single-name lending concentrations, which are the lowest among rated domestic banks.
Halyk Savings Bank of Kazakhstan
BB+/Stable/B
BB/Positive/B
July 18, 2006
The upgrade reflects Halyk's focused strategy on building a financial services group in the Republic of Kazakhstan (foreign currency, BBB-/Positive/A-3; local currency BBB/Positive/A-3), implemented by the experienced and capable management; the preservation of its leading domestic franchise in retail and small and midsize enterprise banking and strong national presence despite increased competition; a sustained track record over the past three years in improvements in profitability and capitalization, which compare well with peers'; and the growing funding diversification.
Russia
Alfa Bank
BB/Stable/B
BB-/Stable/B
Dec. 19, 2006
This rating action reflects the bank's strengthened commercial position, good management, progress in the development of business in line with the strategy, and continuous shareholders' commitment to the bank.
Bank Soyuz
B-/Stable/C
CCC+/Positive/C
June 22, 2006
The rating upgrade reflects Soyuz's progress in strengthening its independent franchise outside of the related Basic Element (not rated) group, and in improving its credit profile through a more diversified funding base and loan portfolio. The ratings remain supported by Soyuz's strong business ties to the group, which provide funding and capital support. The ratings are constrained by the bank's still-high, although improving, single-party concentrations on both sides of the balance sheet, its weak recurrent profitability, and its high exposure to the volatile Russian securities market.
Commercial Bank Petrocommerce (OJSC)
B+/Stable/B
B/Positive/C
Aug. 9, 2006
The upgrade reflects Commercial Bank Petrocommerce's (PK) good progress in strengthening its corporate franchise, its improving recurrent profitability, and good capitalization. The positive effect of PK's close relationships with LUKoil OAO--one of Russia's major oil companies--remains a supporting rating factor, although there is a significant risk of LUKoil reducing the flow of its business with PK in the medium term.
Bank URALSIB (OJSC)
B+/Positive/B
B/Positive/C
Nov. 27, 2006
The upgrade was driven by reduced integration risks linked to the complex merger of the five banks that formed URALSIB in 2005, and by the increasing business diversification of the enlarged bank.
Gazprombank
BB+/Stable/B
BB/Positive/B
Oct. 23, 2006
The rating action on Gazprombank is driven by its strengthening commercial profile, and closer ties to its parent OAO Gazprom (Gazprom; BBB/Stable/--). Gazprombank's projected $1.28 billion new capital increase from Gazprom in late 2006 is a positive development that illustrates Gazprom's commitment to the bank. Standard & Poor's regards Gazprombank to be a strategically important subsidiary of Gazprom, and considers that Gazprom is able and committed to provide the necessary assistance to Gazprombank to support its expansion, but also in a distress scenario.
International Moscow Bank
BBB-/Stable/A-3
BB/Positive/B
Oct. 10, 2006
The upgrade reflects UniCredito's acquisition of the additional 26.4% stake in IMB on Oct. 10, 2006, and UniCredito's expected operational, funding, and capital support to IMB. The expected capital increase of about $100 million is another positive development. We regard IMB to be a strategically important subsidiary of UniCredito, and consider that UniCredito is very likely to provide the necessary assistance to IMB to support its expansion, but also in a distress scenario.
Home Credit and Finance Bank LLC
B/Stable/C
B-/Stable/C
July 10, 2006
The upgrade is due to the bank's strengthening financial profile and improved risk management, and on the expectation of improvement in asset quality after some deterioration in mid-2005.
Investment Bank CIT Finance
CCC+/Stable/C
CCC/Positive/C
Aug. 25, 2006
The upgrade reflects CIT Finance's longer track records of high profitability and its increased capitalization following a capital increase and profit retention.
MDM Bank
BB-/Stable/B
B+/Positive/B
Dec. 19, 2006
The rating action reflects our increased confidence that MDM's newly adopted strategy will positively affect its commercial and financial standing going forward, and the bank's increasing business diversification and core profitability.
Promsvyazbank JSCB
B+/Positive/B
B/Watch Pos/C
Dec. 19, 2006
The upgrade is based on the bank's strengthened financial profile after the new capital increase. Commerzbank has acquired a 15.3% stake in PSB in December 2006 through a new $157 million share issue at PSB; of this new capital, about 60% came from Commerzbank and 40% from existing owners.
Rosbank OJSC
B+/Positive/B
B/Stable/C
Oct. 3, 2006
The upgrade reflects SocGen's acquisition of an additional 10% stake in Rosbank in September 2006 (bringing its ownership to 20% less one share), and is driven by SocGen's expected operational and managerial support to be provided to Rosbank.
Surgutneftegasbank
B+/Stable/B
B/Stable/C
Aug. 10, 2006
The upgrade reflects the bank's low risk profile, improving business diversification, and high proportion of liquid assets in its balance sheet. The ratings are also supported by the continuing close relationship between the bank and its parent, Surgutneftegas (SNG; not rated), one of largest oil companies in Russia.
Bank VTB 24
BBB+/Stable/A-2
BBB/Stable/A-2
Oct. 23, 2006
The rating action on VTB 24 is driven by the upgrade on VTB. Given its strategic importance, 96%-ownership, and strong integration, VTB 24 is considered to be a core subsidiary of VTB, and hence the ratings are now equal to those on VTB.
Vneshtorgbank (JSC)
BBB+/Stable/A-2
BBB/Stable/A-2
Oct. 23, 2006
The rating action on VTB is driven by improvements in its stand-alone performance, good growth prospects in Russia and the Commonwealth of Independent States, and strong ties with its principal owner, The Russian Federation.
Ukraine
Ukrsotsbank
B/Watch Pos/B
B-/Watch Pos/C
Sept. 11, 2006
The upgrade reflects the bank's strengthened capitalization; improved profitability and efficiency in the first half of 2006; stabilized political environment and economic improvements in Ukraine (foreign currency, BB-/Stable/B; local currency, BB/Stable/B); the bank's good commercial franchise; and good financial flexibility and liquidity.
*Dates represent the period from June 1, 2006, to Dec. 20, 2006, covered by this report.
Table 3
Outlook Revisions
Issuer
To
From
Date*
Reason
Kazakhstan
ATF Bank
B+/Positive/B
B+/Stable/B
July 18, 2006
The outlook revision reflects ATF's improved market position in the domestic banking sector and strengthened capitalization.
Bank TuranAlem
BB/Positive/B
BB/Stable/B
Dec. 4, 2006
The rating action reflects the shareholders' plan to inject a total of $400 million of new capital by the end of the first quarter of 2007, demonstrating their commitment and support to the bank--although this is just enough to maintain capitalization at tight levels given continued fast balance sheet growth. It also reflects the bank's less aggressive future growth strategy, improving ownership transparency, and clearer group disclosure regarding subsidiaries in Russia and CIS, which are expected to be fully consolidated by year-end 2007.
Russia
Bank of Khanty-Mansiysk
B+/Positive/B
B+/Stable/B
Sept. 28, 2006
The outlook revision reflects the bank's improving customer franchise and competitive position. The close ties to its owner--the government of Khanty-Mansiysk Autonomous Okrug (KMAO; foreign currency, BB+/Positive/--), located in Siberia--are another positive factor.
European Trust Bank
CCC/Positive/C
CCC/Stable/C
Sept. 29, 2006
The outlook revision reflects the bank's improving customer franchise and competitive position. The bank's new development strategy, which emphasizes regional expansion, business diversification, and development of its retail business, is also positive for the ratings.
Russian Standard Bank
B+/Positive/B
B+/Stable/B
July 10, 2006
The outlook revision reflects the bank's sustained commercial and financial performance, which improves the potential for a future upgrade.
Transcreditbank
B-/Positive/C
B-/Stable/C
June 2, 2006
The outlook revision reflects the bank's strengthening commercial and financial performance, as well as a likely change in its ownership, which improve the potential for a future upgrade.
*Dates represent the period from June 1, 2006, to Dec. 20, 2006, covered by this report. This table exclusively includes rating actions when only outlooks were revised. Please refer to table 2 for rating actions when both ratings and outlooks were revised simultaneously. There were no outlook changes on Ukrainian banks during the period.
Table 4
CreditWatch
Issuer
CreditWatch implications
Date*
Reason
Russia
TD ESOP (Cayman) Ltd. (Troika Dialog)
B+/Watch Pos/B
Dec. 19, 2006
The CreditWatch placement reflects the positive impact of the dynamic Russian economy and capital markets on Renaissance and Troika Dialog. Both companies have leading positions in the specialized areas of securities brokerage, primary placement, mergers and acquisitions, and asset management in Russia. Renaissance and Troika Dialog managed extraordinary growth in 2005 and 2006 with good success, and strengthened their capital position and balance sheet in the process. The strong financial performance should also continue in 2007.
Renaissance Capital Holdings Ltd.
B+/Watch Pos/B
Dec. 19, 2006
The CreditWatch placement reflects the positive impact of the dynamic Russian economy and capital markets on Renaissance and Troika Dialog. Both companies have leading positions in the specialized areas of securities brokerage, primary placement, mergers and acquisitions, and asset management in Russia. Renaissance and Troika Dialog managed extraordinary growth in 2005 and 2006 with good success, and strengthened their capital position and balance sheet in the process. The strong financial performance should also continue in 2007.
*Dates represent the period from June 1, 2006, to Dec. 20, 2006, covered by this report.
Table 5
New Ratings
Issuer
Rating
Date*
Comments
Russia
Brokerage House OTKRITIE
CCC/Stable/C
Aug. 24, 2006
The ratings on OTKRITIE reflect its high exposure to the volatile and thinly traded Russian capital markets, poor revenue diversification, and barely adequate capitalization. These negative factors are mitigated by the company's strong profitability, and growth potential on broadening Russian financial markets.
CentroCredit Bank JSC
CCC+/Stable/C
July 27, 2006
The ratings on CCB reflect the bank's high exposure to the Russian securities markets, limited customer franchise, high dependence on trading income, and the weak structure of the funding base. These negative factors are partially mitigated by the bank's good capitalization, good track record in trading, and the improving macroeconomic environment in Russia. CCB's stable management team that has been with the bank since 1996 is another positive factor.
Rusfinance Bank
BB/Positive/B
Nov. 7, 2006
The ratings on Rusfinance Bank reflect the bank's strategically important status within the Société Générale group (SocGen; AA-/Positive/A-1+), which benefits the Russian bank in terms of capital support, financial flexibility, funding, risk management, and managerial and IT support. Positive rating factors also include a diversified loan portfolio, improving financial performance, and strengthening capitalization. The ratings are constrained by the bank's relatively short operating history in the rapidly growing and untested retail-lending segment in Russia, the risky operating environment, and increasing competitive pressure.
SOTSGORBANK
CCC/Positive/C
June 21, 2006
The ratings on SOTSGORBANK reflect its limited commercial franchise, its high concentrations in lending, and constrained financial flexibility. The bank does, however, benefit from adequate recurring earnings and capital, and a stable ownership and management structure.
Bank VTB 24
BBB/Stable/A-2
Aug. 24, 2006
The ratings on VTB 24 reflect its core group status within Vneshtorgbank, which currently owns 96% of the bank, and its good growth potential on the domestic retail market. The ratings are also supported by the bank's improving business and financial profile. These positive factors are constrained by the bank's weak profitability; challenges of ongoing business transformation; and funding dependence on its parent.
Kazakhstan
JSC Eurasian Bank
B/Stable/B
Nov. 9, 2006
The ratings on Eurasian bank reflect its modest customer franchise, short track record of the new strategy, rapid loan growth, and limited financial flexibility in the high-risk economic environment of the Republic of Kazakhstan. Positive rating factors include its wealthy and supportive shareholders, diversifying customer base, good profitability, adequate capitalization, and reduction of individual loan concentrations.
KazInvestBank
B/Stable/B
Dec. 4, 2006
The ratings on KazInvestBank are constrained by its modest domestic franchise with a short track record of operations, rapid loan growth, high concentration on both sides of the balance sheet, low financial flexibility, and low profitability. Supportive rating factors are its niche strategy, which is focused on profitability versus market share, its strong management team, better developed risk management than at other local banks, and transparent and supportive shareholders.
Temirbank JSC
B+/Stable/B
Nov. 13, 2006
The ratings on Temirbank reflect its ambitious strategy and short track record, as well as its small size, which exposes it to high funding risk, and to a lesser extent, credit concentration risks. The ratings also reflect the improving, but still vulnerable, domestic economic environment of the Republic of Kazakhstan to which the bank--together with the rest of the Kazakh banking sector--is exposed. These negative factors are somewhat mitigated by the bank's strengthening franchise, good business prospects, and its supportive shareholder.
Ukraine
JSC KREDOBANK
B/Stable/B
July 19, 2006
The ratings on KREDOBANK reflect its low capitalization and profitability, modest domestic market position, and above-average credit risk. In addition, the bank operates in the unstable political and macroeconomic environment in Ukraine (foreign currency, BB-/Stable/B; local currency, BB/Stable/B). Supporting rating factors are its good franchise in Western Ukraine, focused organic domestic retail growth strategy, which is being implemented by an experienced management team, support from its strategic shareholder Powszechna Kasa Oszczednosci Bank Polski (S.A.) (PKO; BBBpi), and good corporate governance.
*Dates represent the period from June 1, 2006, and Dec. 20, 2006, covered by this report.
Selected Articles
Table 6
Selected Articles
Article
Publication date
Industry Report Card: Major Banks In Kazakhstan, Russia, And Ukraine See Profiles Diverge
June 1, 2006
Kazakhstan
Bank Industry Risk Analysis: Kazakhstan (Republic of)
April 10, 2006
Kazakhstan (Republic of)
July 11, 2006
Kazakhstan FC/LC L-T Ratings Raised To 'BBB/BBB+' On Strong Balance Sheet; Outlook Stable
Nov. 2, 2006
Comparative Statistics: Kazakh Banks
June 28, 2005
Russia
Bank Industry Risk Analysis: Russian Federation (The)
July 21, 2006
Russian Federation (The)
May 26, 2006
Russian Federation LT FC/LC Ratings Raised To 'BBB+/A-' On External Liquidity; Outlook Stable
Sept. 4, 2006
Comparative Statistics: Russian Banks
April 15, 2005
Ukraine
Bank Industry Risk Analysis: Ukraine (Republic of)
May 31, 2006
Ukraine (Republic of)
Aug. 30, 2006
Contact Information
Table 7
Contact Information
Credit analyst
Location
Phone
E-mail
Annette Ess
London
(44) 20-7176-7206
annette_ess@standardandpoors.com
John Gibling
London
(44) 20-7176-7209
john_gibling@standardandpoors.com
Magar Kouyoumdjian
London
(44) 20-7176-7217
magar_kouyoumdjian@standardandpoors.com
Elena Romanova
Moscow
(7) 095-783-4091
elena_romanova@standardandpoors.com
Eugene Tarzimanov
Moscow
(7) 095-783-4071
eugene_tarzimanov@standardandpoors.com
Ekaterina Trofimova
Paris
(33) 1-4420-6786
ekaterina_trofimova@standardandpoors.com
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