International rating agency Moody’s Investors Service has downgraded its long-term deposit ratings on IMoneyBank from B3 to Caa1, while the lender’s BFSR was cut from E+ to E, and its baseline credit assessment was lowered from b3 to caa1. The bank’s short-term deposit ratings were affirmed at Not Prime. The outlook for the bank’s long-term ratings is negative, and stable for BFSR.
The bank’s national scale rating was lowered from Baa3.ru to Ba3.ru, showed information on the website of Moody’s.
The rating downgrade reflects higher vulnerability of the bank’s credit profile amid deteriorating operating conditions and a sharp decline in lending in recent weeks, Moody’s specifies. Analysts think that the bank’s loss absorption ability, which is already low (given extremely weak capital adequacy ratios and modest income), will likely continue to decrease going forward.
The rating agency specifies that as of year-end 2013 the bank’s capital/asset ratio, in line with its IFRS financial statement, was just 5% (7.2% a year ago). The lender reported an annual loss of Rub 96 mln compared to Rub 402 mln in profit in 2012. The agency points out that the bank’s buffer capital to offset possible losses contracted amid fast growth of lending (the bank’s credit portfolio more than doubled during the year, totaling Rub 36.1 bln vs. Rub 16.5 bln in 2012).
Moody’s points to deteriorating conditions in the consumer lending segment of the Russian lending market (falling asset quality and weakening demand on the part of responsible borrowers). Based on the financial institution’s financial statement, the agency forecasts its lending to decline twofold compared to 2013 which, in turn, would take a toll on its commission fees (mainly from insurance contracts) that is the bank’s primary revenue item.
In view of IMoneyBank’s rapid credit portfolio growth in the past and heightened credit risks in the consumer lending segment Moody’s expects that the bank, in spite of a decline in lending and the recently adopted strategy to lower credit risks, will continue to post loan losses in 2014 and report losses. The negative outlook on the bank’s deposit ratings reflects a further reduction in the bank’s buffer capital.
