Russian rating agency RAEX (Expert RA) has upgraded its creditworthiness rating on EurocityBank to B++ (satisfactory level of creditworthiness), with a stable outlook. As the agency noted, previously the bank was rated at B+ (quite low level of creditworthiness), with a stable outlook as well.
The rating action was primarily driven by a rising cushion of its capital adequacy ratios. After statutory ratios of N1.0 and N1.1 were cut to 8% and 4.5%, respectively, risks associated with the violation of the ratios dropped substantially (the bank's N1.0 equaled 10.7% as of February 1, 2016, were N1.1 and N1.2 were equal to 9%). Furthermore, the rating is backed by shareholders' plans to upsize the bank's equity. The agency expects the bank to maintain the N1.0 ratio above 10.5%. The bank's well-balanced assets and liabilities by maturity in the short-term horizon (as of February 1, N3 equaled 84.9%) and a reduction in acceptable currency risks also had a positive effect on the rating.
The rating is pressured by the low credit portfolio quality (as of early February overdue debt accounted for 7.3% of the total credit portfolio) coupled with an insufficiently conservative policy of loan loss provisions. As before, the rating is constrained by insufficiently balanced assets and liabilities by long-term maturity (as of the balance sheet date N4 equaled 113.6%) and high concentration of active operations on entities exposed to high credit risks (CRAR, net of provisions, stood at 64.2%).
