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Thursday 19 July 2018

SB Sberbank JSC’s Long-Term Ratings by Moody’s


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LONDON (Moody’s) — Moody’s Investors Service, (“Moody’s”) has yesterday affirmed the Kazakhstan-based SB Sberbank JSC’s (SB Sberbank) “Ba3” long-term local- and foreign-currency deposit ratings and changed the outlook on those ratings to stable from negative. At the same time, Moody’s affirmed the bank’s baseline credit assessment (BCA) at “b3” and adjusted BCA at “ba3”.

The rating agency also affirmed the following ratings: Not Prime short-term local and foreign currency deposit ratings, Ba2/Not Prime Counterparty Risk Ratings (CR Rating). The overall outlook is stable.

In addition, Moody’s affirmed the bank’s long-term Counterparty Risk Assessment (CR Assessment) at Ba2(cr) and the bank’s short-term CR Assessment of Not Prime(cr).

Ratings rationale
The change of outlook is principally driven by improvement in asset quality and provisioning coverage of SB Sberbank.

The bank’s share of problem loans to gross loans has declined to 26% at end-Q1 2018 from 31% at end-2017 and 35% at end-2016. We expect it to continue to reduce in the next 12-18 months as we expect the bank’s new lending to be of a better quality as operating environment stabilised.

At the same time, the bank’s ratio of loan loss reserve to problem loan has improved to 53% at end-Q1 2018 from 42% at end-2017 and 31% at end-2016. This improvement demonstrates better quality of the bank’s capital which had a shortfall due to insufficient reserve coverage of problem loans. At the same time, we consider that the reserve coverage is still low to result in significant change in SB Sberbank’s credit profile.

The bank’s capitalisation remains relatively stable since end-2016 with tangible common equity to risk weighted assets of around 11%. In 2017 and 2016, the bank’s core profitability also remained stable (albeit weak) with return on average assets below 1%. We anticipate that the profitability will unlikely deteriorate significantly due to new business and restriction of costs growth.

Affiliate support
SB Sberbank’s Ba3 long-term deposit ratings incorporate a very high probability of affiliate support for the bank from its parent, Russia-based Sberbank (Ba1 positive, ba1), which results in a three-notch rating uplift from its BCA of b3. The parent’s BCA at ba1 is used as an anchor for parental support. This assessment incorporates the (1) 100% ownership and control, (2) strategic importance of the Kazakh subsidiary to Sberbank, (3) full alignment of the bank’s branding policy with that of the parent, and (4) track record and commitment for parental support.

What could move the ratings up/down
Achievement of sufficient coverage of problem loans by reserves (over 70%), improvement in asset quality and profitability coupled with a stable liquidity profile and adequate capitalization could exert positive rating pressure. Positive moves in the parent’s credit strength could also exert the upward pressure on the deposit ratings.

Any further deterioration in SB Sberbank’s asset quality and profitability that would lead to a significant weakening in the bank’s capital buffers or deposit outflow and result in a liquidity shortage could result in a negative pressure on the bank’s ratings.

List of affected ratings
Issuer: SB Sberbank JSC

  • Adjusted Baseline Credit Assessment, Affirmed at ba3
  • Baseline Credit Assessment, Affirmed at b3
  • LT Bank Deposits, Affirmed at Ba3, Outlook changed to Stable from Negative
  • LT Counterparty Risk Assessment, affirmed at Ba2(cr)
  • LT Counterparty Risk Ratings, affirmed at Ba2
  • ST Bank Deposits, Affirmed NP
  • ST Counterparty Risk Assessment, Affirmed NP(cr)
  • ST Counterparty Risk Ratings, Affirmed NP Outlook Action:
  • Outlook, Changed to Stable from Negative

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