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Rating Analysis

Rating Analysis


First-Time Ratings

Moody's Investors Service has assigned Ba3 long-term and Not-Prime short-term foreign currency deposit ratings and an E+ (E plus) Financial Strength Rating (FSR) to Evrofinance-Mosnarbank (EM). The outlook for the ratings is stable.

According to Moody's, the Ba3/NP foreign currency deposit ratings reflects a limited degree of support from the bank's government-owned shareholders (namely Moscow Narodny Bank Ltd [Baa3/Prime-3/D+], BCEN-Eurobank, Vneshtorgbank [Ba1/NP/D-] and Vnesheconombank [Ba1/NP/E+]). Moody's believes that there is a moderate likelihood that, through EM's banking shareholders, the government could provide support to the bank, if the need arose.

Moody's also notes that the total stake of government-related shareholders is equal to 49.9% of EM's capital, and EM's franchise benefits from this partnership, as the bank enjoys the strong market perception of being a government-related institution, incurring a lower-than-average level of credit risk; hence a default on its obligations might negatively affect the government's image. EM already has a proven track record of support, having been recapitalised by BCEN-Eurobank after it suffered significant losses during the 1998 Russian crisis leading to the bank's insolvency. Nevertheless, BCEN-Eurobank was a controlling shareholder at that time, while today no individual shareholder has more than 20% stake in the bank. The absence of a majority shareholder diminishes the individual commitment of each shareholder and has led Moody's to impute a moderate likelihood of support.

Moody's adds that the bank's E+ FSR is supported by its (i) strong and lucrative niche in servicing top Russian corporations; (ii) robust liquidity and (iii) sound asset quality. The FSR is constrained primarily by the high concentrations prevailing on both sides of the bank's balance sheet together with a potentially understated level of related-party exposure, which makes EM extremely vulnerable to the performance of a handful of borrowers and clients. Other major factors constraining the FSR at its present level are: (i) the bank's volatile performance driven mainly by the trading in its large securities portfolio (ii) high volumes of non-banking and non-market driven business with the bank's major customers.

Headquartered in Moscow, in the Russian Federation, Evrofinance-Mosnarbank reported total assets of US$1.49 billion in accordance with IFRS as of 31 December 2004. According to Interfax, the bank was ranked 26th in terms of total assets among Russian banks as at 1 April 2004.

Moody's Investor Service, November 2005


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