International rating agency Fitch Ratings has raised its BFSR on Bank Globex from f to b-. The bank's other ratings, which are stipulated by potential support from its owner – Vnesheconombank – remain unaffected by the rating action, Fitch specified in a press release.
As the agency noted, the upgrade of Bank Globex's BFSR reflects its recent recapitalization, which was carried out by VEB. For the record, in August 2016 VEB injected Rub 30 bln into the bank, Rub 15 bln of which came from the conversion of subordinated debt. According to the agency's estimates, after recapitalization Bank Globex's equity, under the agency's methodology, accounts for 10% of risk-weighted assets vs. 1.2% in late 2015. However, weak quality of assets and rates of return continue to exert an adverse impact on the bank's BFSR, analysts noted.
They reiterated that in May 2016 they reduced Bank Globex's BFSR because losses caused by funds put aside against loan impairment resulted in substantial capital shortage. Regulatory capital indicators were higher than required minimum thresholds, but this was driven solely by easing of regulatory requirements.
Bank Globex used VEB's fresh contributions to pile up provisions against loan impairment in its regulatory financial statement to the level equal to the already recognized, pursuant to the IFRS financial statement, the rating agency said in the press release. The agency also specified that as of late September 2016 regulatory indicators of the bank's core and total capital adequacy ratios were 11.5% and 11.6%, respectively, or higher than the minimum thresholds (6% and 8%).
The bank's asset quality remains weak, with loans 90+ days overdue accounting for 29% of the total portfolio at the end of 1H 2016, but they were covered by reserves by 86%, which Fitch views as a good level. Also, there are further risks associated with the portfolio of performing restructured loans and investment real estate. Moreover, the bank's low pre-reserves profit at the breakeven point in January-September 2016 due to moderate margin and the falling scale of operations could push capital down, analysts warned.
