International rating agency Moody's Investors Service has cut Khanty-Mansiysk Otkritie Bank's ratings, namely long-term local currency and foreign currency deposit ratings from B1 to B2, keeping a negative rating outlook, baseline credit assessment from b2 to b3, and adjusted baseline credit assessment from b1 to b2.
The rating for Khanty-Mansiysk Otkritie Bank's hybrid subordinated debt was reduced from B3 (hyb) to Caa1 (hyb). The lending institution's short-term deposit ratings were affirmed at Not Prime. The bank's long-term counterparty risk assessment was lowered from Ba3(cr) to B1(cr), and its short-term counterparty risk assessment was affirmed at NP(cr).
Khanty-Mansiysk Otkritie Bank's national scale rating was also downgraded, data on the website of Moody's showed.
The agency explained that the bank's rating downgrade reflects heavier pressure on its autonomous financial indicators and falling capital reserves for loss absorption.
Inter alia, Moody's pointed to the bank's deteriorating asset quality and a reduction in its credit portfolio. The proportion of bad loans is on the rise, but their insufficient coverage is offset by Otkritie Holding's guarantees (which, by the way, have never been tested), analysts noted.
Higher credit costs put pressure on Khanty-Mansiysk Otkritie Bank's financial performance and capitalization. The bank, which suffered losses in the third quarter of 2015, would continue to report losses over the next twelve months, Moody's believes.
The bank's losses dented on its capitalization indicators. As of November 1, 2015 the lender's core capital adequacy ratio (N1.1) equaled 5.9% against the regulatory minimum of 5%. The bank's capital adequacy ratio (N1.2) improved from 6.4% as of August 1, 2015 (the regulatory minimum is 6%) to 10.3% as of December 1, which occurred after the bank transferred in August two subordinated loans worth $300 mln to its tier 1 capital. But risks associated with the bank's falling capitalization persist because of pressure on the bank's asset quality and low coverage, and the lender may need extra external capital or continue to reduce its leverage.
The bank's deposit ratings are one notch higher than its baseline credit assessment due to, as Moody's thinks, the strong likelihood of support by its parent bank, Bank FC Otkritie.
