Standard and Poor’s downgraded RKB’s long-term issuer credit rating to ‘B+’ from ‘BB-‘ and placed it on CreditWatch with a negative outlook, citing a lack of support from its previous major shareholder, Russia’s VTB, as well as ‘potential side effects of Russian economic activity, including the outflow of deposits”.
RCB, the third largest creditor in Cyprus, announced on February 24 that PJSC VTB Bank sold its 46.3% stake in RCB to Bank of Cyprus shareholders, who represent management, as part of a plan to “protect RCB Bank from escalating geopolitical tensions.” After the Russian military intervention in Ukraine, VTB was included in the sanctions list.
“The business outlook for RCB Bank is likely to be impacted by weakening volumes, lack of support from VTB Bank (formerly its largest shareholder), the start of business and potential spillovers from economic activity in Russia, including deposit outflows,” the agency said.
The agency said that “RCB Bank was protected by a combination of forward planning and a change of control,” adding that “VTB Bank’s sale of its stake in RCB Bank helped improve RCB Bank’s financial profile.”In addition, the agency reported that RCB Bank’s capitalization and risk profile improved slightly as a result of RCB Bank closing its largest loan in Kazakhstan, which accounted for more than 30% of its loans.
“As a result, we now expect our risk-adjusted capital ratio to be consistently above 10%. The loan portfolio is now also more detailed, assuming there are no further shocks affecting the bank. RCB Bank also increased its long-term funding by issuing a EUR 200 million senior non-preferred instrument and a EUR 300 million term deposit (both funded by VTB Bank), which provided some buffer for the outflow of client deposits,” S&P added.
However, he indicated that “the prospects for RCB Bank’s business and the sustainability of its business model will be hampered by its new stand-alone model.”
“Without business growth support from VTB, the bank will have to rethink its business strategy. In our view, this will take time and may be difficult given the bank’s niche and limited franchise,” the agency said in a statement, adding that “decrease in loan volumes, which have declined by more than 30% since the closure of the largest RCB Bank.” Loan in January 2022 and volatile market conditions are likely to impact the bank’s profitability outlook over the next 12-18 months.”
“RCB Bank’s market franchise in Cyprus is limited compared to the two largest players (about 8% of the lending market).In addition, its niche focus may interfere with its business profile due to the side effects of the military conflict between Russia and Ukraine.
In addition, the agency said that, given the uncertainty over a number of factors, we believe that RCB Bank’s ratings may come under further pressure. “Regulatory approval required from the Single European Supervisory Mechanism for a change of control, potential changes to capital management policy in line with new business plans, a possible further outflow of customer deposits or, in a worse scenario, regulatory sanctions, could all impact RCB ratings.” Bank,” the statement said.
In addition, the agency added that “the negative placement on CreditWatch reflects our view that heightened geopolitical and economic risks to the Russian economy could further limit the outflow of RCB Bank’s client deposits and its funding profile” and “reflects uncertainty about expected regulatory approval and any potential governance risks that may arise from the historical links between RCB Bank and VTB Bank.”
The agency concluded by saying that it intends to resolve the CreditWatch issue once we have more clarity on the full macroeconomic implications of sanctions against Russia and related entities and the evolution of the geopolitical conflict, as well as clarity on RCB Bank’s volatility. customer deposits; and regulatory approval of a change of control.