Today, Moody’s Investors Service affirmed the long-term deposit rating of RCB Bank Ltd. (RCB Bank) at B1 with a negative outlook. At the same time, Moody’s downgraded the bank’s underlying credit score (BCA) and adjusted BCA to caa2 from b3, long-term counterparty risk (CR) to B1(cr) from Ba3(cr) and long-term counterparty risk ratings. (CRR) to B1 from Ba3.
According to the statement, this action follows the bank’s announcement on March 24, 2022 of a voluntary cessation of its banking operations, including the full repayment of debts to depositors, and completes the bank’s downgrade review that began on March 10, 2022.
The affirmation of the bank’s B1 long-term deposit rating reflects Moody’s expectation that RCB Bank’s depositors will be fully repaid. On March 24, 2022, RCB Bank announced its decision to voluntarily terminate its banking operations, including the full repayment of debts to depositors, with the aim of transforming the Bank into a regulated asset management company. The European Central Bank (ECB) has decided to restrict the activities of the bank in order to avoid the risks arising from the phased liquidation of the bank.
Moody’s expectations that RCB Bank depositors will receive full payouts are supported by an analysis of the bank’s liquidity profile, which is sufficient to repay all outstanding customer deposit obligations. This followed the announcement of a €556 million loan sale to Hellenic Bank Public Company Ltd on March 22, 2022, which provided ample liquidity available immediately. Moody’s expectations are also underpinned by clear statements from RCB Bank and the ECB that RCB Bank’s voluntary withdrawal from banking operations will include the full repayment of debts to depositors.
RCB Bank intends to redeem the deposits in accordance with their contractual maturity or within the standard notice period of five business days in the event of early termination. RCB Bank will also negotiate with customers whose term deposits mature after June 2022 regarding the terms of early redemption.
As soon as all depositors are redeemed, Moody’s intends to withdraw the deposit ratings of RCB Bank.
The negative outlook on the long-term deposit ratings reflects potential implementation and logistical risks for the orderly and timely repayment of deposits. However, risks are contained as the ECB has decided to appoint an interim administrator who, together with management, will oversee the settlement of all deposits.
The decline in BCA and adjusted BCA to caa2 from b3 reflects the weakening of the bank’s residual operations and franchise. As part of the bank’s phased closure, the ECB has restricted the bank’s activities to avoid risks, so RCB Bank will not be able to accept new deposits, issue new loans or make any new investments. Once the bank stops accepting deposits and issuing loans, it plans to transform into a regulated asset management company, given the significant outstanding assets on its balance sheet.Risks are elevated on outstanding assets, which include Russian corporate exposures and companies registered outside of Russia but with business ties and interests in Russia, due to the impact of geopolitical risks on its operations following the Russian invasion of Ukraine.
The long-term counterparty risk (CR) rating has been downgraded to B1(cr) from Ba3(cr) and the long-term counterparty risk rating (CRR) to B1 from Ba3 to bring it in line with the deposit ratings. As with deposits, this rating is in line with how Moody’s assesses an institution that is phasing out its banking operations as we expect these senior liabilities to be paid in full.
These ratings and scores are assigned to banks in accordance with the methodology of Moody’s Banks and will be withdrawn as the bank transitions to a non-banking financial institution and the banking license terminates, as they will no longer apply.
Given the negative outlook on RCB Bank’s ratings, there is currently limited upside pressure on the ratings over the next 12-18 months.
The ratings could be downgraded if Moody’s suspects that some depositors may receive all of their deposits in an orderly manner at a delay or risk.