Translated material
Using an improved method
Moody's changed ratings of Russian banks
Moody's Investors Service yesterday announced a revision of the ratings of 79 Russian banks. This happened in connection with the emergence of a new methodology for assessing credit institutions at the agency. And although, thanks to the updated methodology, many banks have had their ratings raised, none of them are financially stable enough to reach investment grade, the first level of which (at Moody's - Baa3) has long been occupied by Russia.Last year, Moody's Investors Service developed a new methodology for assigning financial strength ratings to banks. “Moody’s now has two main methods for assessing banks: the BFSR bank financial strength rating (based only on the bank’s performance) and the JDA joint default probability rating, which takes into account the financial strength of the bank itself and the likelihood of its support from shareholders, the state or local authorities,” -- explained Moody's analyst Vladlen Kuznetsov. Both of these methodologies were introduced in order to make the ratings of banks in different countries more comparable. The old methodology for rating the probability of joint default was more formal.
In connection with the new approach to ratings, the agency had to begin reviewing them for more than a thousand banks from more than 90 countries. Moody's management warned that, as a result, the ratings of many credit institutions could be raised. But when the review began, the ratings of many large banks jumped three to five notches - many to the highest investment level of Aaa, so that it became almost impossible to distinguish between banks. Market participants and analysts called the new ratings "perverse" at the time, and Moody's management said it would reduce the weight of the probability of co-default (that is, the probability of a bank being supported) on its rating. Therefore, Russian banks were rated using a refined methodology.
As reported in yesterday's press release from Moody's, as a result of improved performance, the financial strength rating of 12 Russian banks was upgraded. For example, the financial stability ratings of Sberbank, Alfa Bank and MDM Bank increased from "D" to "D+", Rosbank - from "D-" to "D", VTB-24, Absolut Bank, Transcreditbank - from "E+" " to "D-".
The minimum level on Moody's financial stability scale is indicated by the symbol “E” (this level corresponds to the debt rating C-Caa), followed in ascending order by “E+” (corresponding to B3-B1), “D-” (Ba3), “D "(Ba2) and "D+" (Ba1) are the highest of the so-called speculative ratings. This is followed by investment ratings corresponding to the Baa3 debt rating. This is the rating, according to Moody's, that Russia has had for several years now, but the financial stability of even the largest banks is still one or two notches lower. “So far, our banks do not have independent financial stability ratings corresponding to the investment level - they are all at the pre-investment level,” says Mr. Kuznetsov. “But taking into account the likely support of shareholders or the state, the ratings of a number of banks are at the country level.”
Commerzbank slows down rating upgrade of Promsvyazbank
The Fitch Ratings agency published yesterday a message on the revision of the rating outlook for Promsvyazbank from “Positive” to “Stable”. At the same time, all the bank’s ratings remain unchanged (issuer default rating “B+”, short-term “B”, support “5” and individual rating “D”). The agency explained the decision by “a decrease in the likelihood of increasing the share of the German Commerzbank Auslandsbanken Holding AG in the capital of Promsvyazbank to a controlling stake.” As you know, at the end of 2006, Commerzbank acquired 15.3% in the capital of Promsvyazbank and did not exclude the possibility of increasing the stake to a controlling stake in the future. The management of Promsvyazbank yesterday commented on the revision of the rating forecast and the possibility of cooperation with Commerzbank: “The bank does not exclude various strategies in the field of ownership structure and capitalization of the bank, including the continuation of negotiations with Commerzbank. Fitch's upgrade of the bank's rating outlook to Positive in December 2006, as well as its downgrade to Stable today, is based solely on the prospect of Commerzbank acquiring a controlling stake in Promsvyazbank, and not on the latter’s financial performance.”