The office of the Agency Fitch in London
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Fitch has downgraded the rating of Asian-Pacific Bank (ATB) and allowed the risk of outflow of deposits from-for problems at his “daughter” Bank of M2M, serving wealthy clients. Clean the risk of ATB was almost 10 bn RUB.
International rating Agency Fitch made the risk of outflow of clients from the Asia-Pacific Bank (ATB), which occupies 56-e a place on volume of assets among the Russian banks on the background of negative news about he owns M2M private Bank. Monday, November 21, the long-term Issuer default rating ATB downgraded to “B-” to “CCC” rating is placed in list Rating Watch “Negative”.
About the problems of M2M became known in early November. On 7 November the Bank did not fulfill obligations on the repo transaction, as from November 10, has ceased to accept payments. Now ATB, which owns 100% of the shares of M2M, is negotiating with creditors to recapitalize the Bank. ATB expects to conduct the procedure of bail-in, and that the Bank of Russia will agree on it in the beginning of this week.
The rating was downgraded in connection with the increasing pressure on asset quality and capital ATB. As explained by the Agency at the end of the first half of the volume of loans net of reserves amounted to 9.6 billion RUB (88% of primary capital on a consolidated basis) for related parties with a rather poor quality. ATB also posted a 6.5 billion rubles (63% of your capital on a standalone basis) to M2M problems.
Status Rating Watch “Negative” reflects the high risks of the consequences of default on repo M2M and substantial uncertainty in respect of the ATB plan for the salvation of his “daughter”. As Fitch explains, without the support of creditors and the approval of the Central Bank, this plan may lead to the fact that the ATB will have to write off at least a portion of interbank placements in M2M. As a result of the ATB can violate regulatory capital requirements, although, according to the data obtained from Fitch the management of the Bank, the Bank of Russia may allow ATB for a temporary derogation from the requirements for a gradual increase of reserves.
“The risk of outflow of deposits is also present, although it is to some extent mitigated a significant supply of liquidity in the ATB, covering 34% of customer accounts on 10 November,” — said Fitch.
ATB at the time of publication had not responded to requests to RBC for comment.
In the process of awarding the rating the Agency considered the performance of ATB in the first half of the year. As Fitch explains, at the end of June 20% of loans on Bank balance was broken. Most of them (81%) belonged to unsecured retail portfolio, which is non-performing loans was high, from the point of view of the Agency, the level is 34%.
Non-performing loans was 88% covered by reserves (the Agency calls it a reasonable indicator), but “at the same time, indicators of non-performing loans represent a high-risk Bank loans to related parties and M2M, what are the key weaknesses of the Bank.” In addition, since ATB has closed the acquisition of M2M in the third quarter, statements of the parent Bank for the first half of the year indicators does not account for the child. At the end of the third quarter the gross loan portfolio of M2M accounted for 18% of the portfolio ATB (based on regulatory reporting), and Fitch estimates that about 70% of the loans in the portfolio at that time was non-performing or restructured.
The total net risk of ATB and M2M in related parties are presented by loans of the holding company (7.5 billion RUB at the end of June) and shares of gold companies (2.1 billion rubles), which at the end of the half year were equal to 88% of the fixed capital on a consolidated basis. Most of these loans is unsecured and, as Fitch understands, according to management, granted for financing other companies of shareholders, some of which have fairly high leverage (ratio of debt capital and equity capital of the company and the impact of this ratio on net profit), while others show weak performance. In addition, there is a risk of further pressure on capital due to the potential repurchase of shares from foreign minority shareholders.
On a standalone basis, the ATB has the risk to 6.5 billion rubles (63% of capital) for M2M. Fitch believes that the Central Bank has imposed restrictions on the support of M2M liquidity from ATB to protect the creditworthiness of the parent Bank.
From M2M also has solvency problems, as evidenced by the failure to comply with the capital adequacy standards on November 1, 2016 due to the additional reserves created in accordance with the requirement of Bank of Russia.
ATB can only partially support her “daughter” of capital, and it can spread regulatory constraints. According to Fitch, obtained from the management of ATB, now considered the involvement in the M2M rehabilitation of some of its lenders that can provide sufficient capital. At the same time, there is a significant risk associated with the performance of, and in the end, problems with asset quality at M2M may require further redundancy, the Agency said.
On the background of negative news around M2M, there is a risk of outflow of funds from the ATB, “although it is to some extent mitigated a significant supply of liquidity in the ATB, covering 34% of customer accounts for 10 November”.
M2M private Bank (161 th place in the ranking Banki.ru) calls himself the only Russian Bank focused on serving high net worth clients. As follows from the data on the Bank’s website on October 1, 2016 there were of 6.15 billion rubles of individuals.
ATB — hundred-percent owner of the shares of M2M. The Bank occupies 56-e a place on volume of assets among Russian banks, according to the portal Banki.ru. The main shareholders of ATB — founder of gold miner Petropavlovsk PLC Peter Hambro, Alexei Maslovskiy and their partner Andrey Vdovin. Among the shareholders of the Bank foreign company East Capital Financials Fund AB (owned at 17.91%) and IFC (of 6.71% of the shares).