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Russia-Based Bank Otkritie Financial Co. Ratings Kept on CreditWatch Negative

07.10.2015

S&P Keeps Bank Otkritie Financial Co. On CreditWatch Negative 

  • We believe that Bank Otkritie Financial Co. (Bank OFC) continues to face uncertainties related to Otkritie Holging banking group's structural changes and the integration of recently rescued TRUST Bank.
  • We therefore have limited visibility as to whether Bank OFC is likely to be immune to risks stemming from other sides of the group, in particular, the potential negative impact of a failed TRUST Bank.
  • We consequently are extending our CreditWatch with negative implications on our 'BB-' and 'ruAA-' ratings on Bank OFC.
  • We intend to resolve the CreditWatch within next 90 days after we have clarity on the group's structure and business strategy, including the incorporation of TRUST Bank into the group.

On Oct. 6, 2015, Standard & Poor's Ratings Services announced that it maintained its CreditWatch with negative implications on its 'BB-' long-term counterparty credit ratings and its 'ruAA-' Russia national scale ratings on Russia-based Bank Otkritie Financial Co. (Bank OFC). The ratings were initially put on CreditWatch on Feb. 27, 2015.

At the same time, we affirmed our 'B' short-term ratings on the bank.

The CreditWatch reflects our view of the uncertainties Bank OFC continues to face regarding the integration of recently rescued TRUST Bank into Otkritie Holding group. We understand that the Russian Central Bank (CBR) and the Deposit Insurance Agency (DIA) have yet to finalize the rehabilitation plan for TRUST Bank and that the bank's integration into the group has yet to be defined. In particular, we understand from public comments that the merger of TRUST Bank with the retail arm of Bank OFC, Khanty-Mansiysk Bank Otkritie, is a possibility. This could represent a significant strategic change from the group's growth strategy prior to involvement in the financial rehabilitation of TRUST Bank. We believe such a strategic shift could have a significant impact on Bank OFC, depending on the details of the integration plan.

Without clarity on these key issues, we currently have limited visibility Bank OFC's exposure to or insulation from the risks of the rest of Otkritie Holding group, in particular, those related to TRUST Bank's financial.

CreditWatch

We aim to resolve the CreditWatch within the next three months when the CBR, the DIA, and Otkritie Holding group expect to finalize the integration roadmap for TRUST Bank's financial rehabilitation. At that time, we also expect to have a better understanding of the potential impact of the integration process and the consolidation of capital on Bank OFC and its parent, Otkritie Holding.

We could lower the ratings if we believe that Bank OFC's consolidated risk position has worsened due to integration of TRUST Bank or due to deterioration of operational conditions. We could also lower the ratings if we believe that the group's updated ownership structure and the structure of intragroup exposures makes Bank OFC vulnerable to changes in credit quality of other, less creditworthy entities within the group.

We could affirm the ratings if we believe that the group's structure and Russian regulations allow us to consider Bank OFC immune to risks from the rest of the group, with regulators having sufficient power to prevent the group from utilizing Bank OFC's resources to support weaker parts of the group in times of stress.