International rating agency Standard & Poor's has cut its long-term counterparty credit rating on International Bank of Saint Petersburg from B to B-, the rating agency said in a press release. The rating outlook is negative. Meanwhile, the bank's short-term credit rating was affirmed at С, and its national scale rating was cut from ruBBB+ to ruBBB-.
The agency downgraded the ratings of International Bank of Saint Petersburg as it believes that over the next 12-18 months its capitalization indicators would most likely remain weak as the earlier anticipated conversion of subordinated debt would not be carried out, the agency said. As the agency currently forecasts, the lender's risk-adjusted capital (RAC) would be 4-4.2%.
Analysts believe that the bank's owner has no intention at the moment to convert the bank's subordinated debt, which constitutes tier 2 capital, into equity or tier 1 hybrid capital.
The negative outlook reflects the probability of further downgrades of the bank's ratings given its vulnerable position in the market, its dependence on the owner's actions and creditworthiness of its largest borrowers, and also the concentrated base of deposit holders. At the same time, the rating outlook may be revised to stable if the bank's narrow client base and credit portfolio are diversified while maintaining stable capitalization and RAC above 4%, the agency specified in the press release.
S&P may cut IBSP's ratings if much higher growth in loan provision expenses than the agency anticipates would result in a further drop in the bank's tier 1 capital that is low at the moment. This could be driven by the non-fulfillment of obligations by any large borrower of the bank. The loss of customer trust and deposit withdrawal in an amount sufficient to deteriorate liquidity indicators could also lead to rating downgrades, S&P analysts noted.
Meanwhile, IBSP told Banki.ru that under the Russian Accounting Standards the bank holds a more than 2x higher capital cushion.
"Due to the upcoming participation in the federal bank capital injection program we held off on the scheduled conversion of tier 2 capital into tier 1 capital (as this is construed in the International Financial Reporting Standards, IFRS). One of the conditions for participation in the capital injection program is an increase in tier 1 capital using own resources of a bank's shareholder. The tier 1 capital configuration (in the IFRS terms) will be specified upon approval of capital increase parameters as part of the federal program," the bank emphasized, adding until now IBSP's rating has been unchanged since 2012.
