10.03.2022
Moody’s Investors Service today placed all of RCB Bank’s long-term ratings on review for downgrade, including long-term deposit ratings at B1, citing “higher credit risk associated with RCB Bank’s corporate exposure in Russia” amid sanctions imposed by against Russia after its invasion of Ukraine.
In addition, as part of the same rating action, Moody’s downgraded the bank’s underlying credit rating (BCA) and adjusted BCA to b3 from b2, its long-term counterparty risk assessment (CR) to Ba3(cr) from Ba2. (cr), as well as long-term counterparty risk ratings (CRR) from Ba3 to Ba3. All of these ratings are under consideration for downgrading.
The agency said that RCB Bank’s B1 deposit ratings now reflect a lower BCA of b3, which was mitigated by a higher upgrade in Moody’s Advanced Loss Given Failure (LGF) due to the bank’s “preemptive steps to strengthen its ability to absorb losses”. recently by issuing loss-absorbing debt to meet its minimum eligible debt-loss-absorption (MREL) requirements, which strengthened the protection provided to savers.”
In addition, it states that the current BCA and the adjusted BCA also recognize “the bank’s efforts to mitigate its direct exposure to the Russian government-owned and recently sanctioned VTB bank, PJSC (VTB Bank), which mitigates any potential direct reputational damage from sanctions”.“However, given the gap in the joint business with VTB Bank, we expect lower profitability in the next 12-18 months, until the bank manages to reduce costs and realize its strategic expansion. RCB Bank’s strategy for 2020-2023 provides for the expansion of its domestic Cypriot operations, loans and deposits. Although RCB Bank is expanding its business in the domestic market, it still remains relatively small,” Moody’s said in a statement.
The agency added that the downgrade review of the bank’s long-term deposit ratings B1, long-term CR Ba3(cr), long-term CRR Ba3 and BCA b3 and adjusted BCA “will consider the extent to which RCB’s asset quality will deteriorate beyond current expectations, given the uncertainty around the extent to which a weakening operating environment in Russia will weaken the solvency of RCB Bank’s corporate clients, and how this, in turn, will affect the overall solvency profile of RCB Bank.
“Furthermore, the possibility of an increase in the scope and severity of coordinated sanctions by Western countries and unpredictable government responses could also affect the ability of Russian affiliates to conduct cross-border transactions, even if their ability to do so continues unabated,” Moody’s said in a statement.
Moody’s said that with the downgrade of RCB Bank, “there is currently limited upside pressure over the next 12-18 months.” “The ratings could be downgraded if Moody’s suspects that there could be a more severe deterioration in asset quality and profitability than currently expected, undermining the bank’s capital, or if Moody’s considers there is an increased risk of any indirect reputational damage. its financing and liquidity profile,” the agency said, adding that any further tightening of sanctions imposed on Russia, including the export of goods or further disruptions in payments, including the possibility of further tightening of restrictions on foreign exchange transactions, could also lead to a downgrade of RCB Bank’s ratings.
