"The key drivers for outlook change were the external factors. Same rating actions have already been made on other Russian banks. Ratings affirmation at the current levels testifies the validity of our strategy and focus on risk management. We have anticipated possible economic aggravation and did our best to be well-prepared to the negative developments. Consistent toughening of the credit policy and strengthening of the role of risk management in decision-making allows us to feel safe enough despite deterioration in the credit quality across the whole system," — commented Andrey Shalimov, Deputy Chairman of the Management Board.
"Basing on the lessons, learned from the macroeconomic crises experienced by the country throughout the last 20 years, we maintain a substantial liquidity cushion to be protected in case of possible outflows of client funds. High level of capital adequacy will allow the bank to absorb risks if additional charges to provisions become necessary," — added Mr. Shalimov.
The analysts of the rating agency note entrenched franchise in the bank's major targeted regions of presence and reasonable capital and liquidity buffers, which at the moment allow to minimize risks of potential volatility of deposits and worsening of the credit quality. The bank keeps its liquid assets at the level of 20% of the balance sheet. Total regulatory capital adequacy ratio (N1.0 norm) stood at 12.3% as per June 30, 2014, while the minimum acceptable level is set at 10%. Common equity Tier1 capital adequacy ratio (N1.1 norm) reached 9.9% by the same reporting date, significantly exceeding the minimum requirement of 5%. As positive factors, the analysts also notice the high level of NPL coverage by provisions (over 100%), low dependency on market funding and stable pre-provisioning income. Rating outlook revision was the result of deterioration in the domestic operating environment, which may further negatively influence the bank's credit fundamentals.
At macroeconomic level, Moody's expects that the prolongation of the crisis in Ukraine, capital flight, the restricted international market access of Russian companies, depressed oil prices, depreciation of the Russian rouble will weaken the creditworthiness of the bank's borrowers and increase funding costs. In the mid-term, the analysts of the rating agency expect NPLs to grow by more than 2% across the whole banking system of Russia. For Bank Vozrozhdenie it may imply an increase in charges to provisions, exerting negative pressure on V.Bank's profitability and, therefore, capital adequacy.
Moody's might change the outlook to Stable if there are material improvements in the bank's operating environment.