Russian rating agency RAEX (Expert RA) has lowered its credit rating on Moscow-based Financial Standard to C++ (Very low level of creditworthiness (pre-default)). The negative outlook was set for the rating, which implies the high likelihood of the rating being downgraded in the medium term. The bank was previously rated at B+ (Quite low level of creditworthiness), with a negative outlook, RAEX noted.
As the agency pointed out, the rating action came after regulatory risks grew following the introduction at the bank of a ban to draw funds of households since April 27, and also because the capital adequacy ratio decreased due to the additional accrual of loan loss provisions. The agency thinks that the ban to draw retail deposits may drive deposit holders out of the bank and cut the amount of liquid assets, which determined the negative rating outlook.
The rating is adversely affected by low coverage of the credit portfolio (as of April 1, 2016 the total credit portfolio (excluding inter-bank loans) was covered, taking no account of collateralized securities, sureties or guarantees, by 50%), high concentration of active operations on entities associated with high credit risks and the bank's unprofitable operations (losses came to Rub 149.3 mln in January-March 2016).
Good diversification of the resource base by creditors and reasonable currency risks that the bank accepts stand out among factors lending support to the rating.
