Russia's Promsvyazbank gets $230mn capital injection

By bne IntelliNews November 24, 2015

One of Russia's largest private banks, Promsvyazbank (PSB), has received a RUB15.7bn ($236.5mn) capital injection from its main shareholder Promsvyaz Capital B.V., the bank said on November 23.

"Increasing the capital [of PSB] signals the readiness of the shareholders to support and develop the business in line with the chosen strategy," the bank's head Artem Kostandyan was quoted as saying ina  statement.

Notably, the capital injection will make PSB comply with the regulations of receiving state support through OFZ federal bonds recapitalisation scheme, the president stressed.

In May 2015, PSB, the eighth largest banking group in Russia by total assets, received a capital injection of RUB13.8bn from a main shareholder, which was "used to develop regional business and develop relationships with large clients".

On November 17, Moody's Investors Service upgraded the long-term local- and foreign-currency ratings of PSB to Ba3 from B1, outlook Negative, the agency said.

"The upgrade of PSB long-term deposit and senior unsecured debt ratings to Ba3 from B1 reflects Moody's expectation that the bank will receive a moderate level of extraordinary support from the Russian authorities in case of need," the agency commented.

The upgrade followed the Central Bank of Russia's (CBR) announcement of October 20, approving the list of 10 systemically important banks and formally designating PSB as a systemically important financial institution, Moody's specifies.

At the same time, the affirmation of the bank's b1 BCA (Baseline Credit Assessment) reflects the moderation of negative credit factors, in Q2 and Q3 2015, reflected in PSB's ability to strengthen its capital base as planned, and the stabilisation of its earnings-generating capacity.

The rating agency expects that the bank will maintain its Tier 1 ratio above 9% and that its total capital adequacy ratio will be approximately 16% at the end of 2015, compared with 9.3% and 14.5% respectively at H1/15 (8.0% and 13.5% at the end of 2014).

However, the Negative outlook reflects persistent risks to the credit profile in Russia's challenging operating conditions. These will continue to exert pressure on financial fundamentals of PSB due to high single-borrower concentration, sizeable exposure to forex-denominated loans, and still moderate (albeit improved) Tier 1 capital level, which will remain sensitive to exchange-rate volatility and reliant on external capital injections.

In H1/15, PSB reported a net loss of RUB4.8bn ($73.7mn) compared with net profit of RUB561mn in H1/4. Moody's expects the bank to be loss-making in 2015 due to increased provisioning expenses.

However, PSB's earnings-generating capacity stabilised given its net interest margin improvement in Q3/15-Q4/15 to approximately 3.5%, after halving to 2% in Q1/15.

"Expected easing provisioning pressure in 2016 coupled with non-recurring gains will support the bottom line and reduce losses, helping the bank to break-even by the end of next year," Moody's believes.

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