Fitch Ratings-London/Moscow-08 October 2008: Fitch Ratings has today placed Russia-based CB Renaissance Capital’s (OOO) (CBRC) ratings of Long-term Issuer Default (IDR) 'B-' (B minus), Short-term IDR 'B', National Long-term 'BB(rus)' and Individual 'D/E' on Rating Watch Negative (RWN). The bank’s other ratings are affirmed at Support '5' and Support Rating Floor ‘No Floor’.
The RWN reflects CBRC’s currently tight liquidity position and the significant volumes of funding maturing in the near-term, particularly in October 2008. On balance, Fitch’s base case expectation is that CBRC will be able to meet its obligations; however, the RWN highlights the heightened near-term liquidity risk facing the bank.
Following the redemption of a RUB3.2bn bond on 3 October, Fitch estimates CBRC has only a small amount of cash and equivalents on its balance sheet and no securities that could be repo’ed with the Russian Central Bank. The agency understands that the bank has significant funding falling due in October from financial institutions and from large non-affiliated customers (i.e. which are among the bank’s top 20 customer depositors). In addition, Fitch notes that more than half of CBRC‘s customer funding is from clients outside of its top 20 depositors, and the agency does not have information as regards the maturity profile of these accounts. However, Fitch notes repayment pressure seems to ease significantly after October. The amount of interbank and non-related customer repayments in November-December seems to be moderate compared to October, and Fitch has been informed that a large loan from a related party, maturing in November, will likely be rolled over. Following the recent bond repayment, CBRC has no significant debt issues which mature or could be put back to the bank in Q408.
CBRC’s management views loan repayments as the bank’s primary source of near-term liquidity, with these generating USD200m-250m (RUB5.2bn-RUB6.5bn) a month. Restrictions on new loan issuance introduced in September should help the bank to retain most of this inflow to service its debt, albeit with potential negative implications for the bank’s franchise. Additional liquidity could be made available by the wider Renaissance group, although there is now greater uncertainty about the provision of such support given recent tight liquidity at its investment bank, Renaissance Capital Holdings Limited (RCHL, ‘BB-’ (BB minus)/Negative), and the now distinct ownership structures of RCHL and CBRC (see separate press-release published on 23 September 2008 and available on www.fithcratings.com).
Fitch will continue to monitor closely CBRC’s liquidity position during the coming weeks and may downgrade the ratings if its liquidity deteriorates further. However, the ratings may be affirmed if the liquidity position stabilises.
More generally, Fitch notes CBRC’s improved performance and asset quality this year, with return on average assets rising to 2.2% in H108 and non-performing loans (i.e. loans which are not serviced for more than 90 days according to the original contractual terms) at 4% of gross loans at end-H108, which is moderate for CBRC’s high-margin business. Capitalisation also remains adequate, with a Basel I Tier I ratio of 15.8% at end-H108.
CBRC is a specialist consumer finance bank, which has been fully operational since 2004. At end-H108, it was the 51st-largest bank in Russia by total assets and was among the top 20 retail lenders. It has a network of 109 branches covering 66 regions of Russia and approximately 15,240 active points of sale. CBRC is part of the broader Renaissance Group, which also includes RCHL, merchant banking entity Renaissance Partners and asset manager Renaissance Investment Management. |
