OREANDA-NEWS. Moody’s Investors Service has today assigned first-time local and foreign currency longterm deposit ratings of Ba2, local and foreign currency short-term deposit ratings of Not-Prime, and a standalone bank financial strength rating (BFSR) of D (equivalent to a baseline credit assessment (BCA) of ba2) to Amsterdam Trade Bank N.V. (ATB).The outlooks on the standalone BFSR and the long-term deposit ratings are stable.

Moody’s assessment of the likelihood of support from ATB’s parent, Alfa-Bank (long-term rating Ba1 stable; BFSR/BCA D/ba2 stable) results in a moderate probability of parental support for ATB. However, as the standalone risk profiles of both the parent and its subsidiary are reflected at the same level of BCA at ba2, the support assumptions do not provide for any rating uplift for ATB’s long-term deposit ratings. Moody’s does not assume any systemic support from the Dutch government (Aaa negative) into ATB’s long-term deposit ratings. -

ATB’s ba2 BCA mainly reflects (1) the bank’s relatively high risk profile deriving from concentrated corporate banking activities in CIS countries; (2) its limited standalone franchise and intra-group exposures ; (3) reputational risks embedded into its pledged deposit transactions; and (4) its solid financial fundamentals (relative to peers) and the fact that ATB is subject to the regulations and supervision of the Dutch Central Bank (DNB). ATB is a Dutch subsidiary of Russian bank Alfa-Bank, which is Russia’s largest privately owned banking group, operating one of the largest retail branch networks in the country. ATB primarily conducts lending activities towards corporate exporters based in the Commonwealth of Independent States (CIS) and Central and Eastern Europe (CEE).

The bank is the competence centre in Europe for Alfa-Bank in the area of international corporate banking and cross-border trade financing. Moody’s views ATB’s overall credit profile as risky, because its lending business involves large single-borrower concentrations and emerging/developing country concentrations. ATB plays an increasing role within Alfa banking group, as illustrated by its growing importance and expertise in cross-border trade finance transactions. Although ATB’s governance is independent from its parent, we believe that the bank’s franchise remains largely dependent on Alfa-Bank. Despite recent geographical diversification efforts, ATB’s loan origination is still largely tied to Alfa-Bank’s network in the CIS region, which tend to limit its standalone franchise.

Moreover, ATB’s BCA is also constrained by intra-group exposures to Alfa-Bank representing around 40% if the bank’s Tier 1 capital, and to other related parties. In addition, ATB serves as intermediary in pledged deposit transactions, where clients deposit money at ATB which then instantaneously re-deposits the funds at another bank for a fee. As part of these transactions, ATB offers its CIS customers an entry point to foreign market investments, facilitating due diligence and compliance processes.

Although we understand that no credit risk and/or liquidity risk are entailed in such operations, they artificially inflate the bank’s balance sheet, adding complexity and opacity to some degree, and could result in reputational risks in Moody’s opinion. Nevertheless, as a Dutch bank, ATB is regulated and supervised by the DNB. In Moody’s view ATB is subject to a more stringent supervisory framework than its peers in the CIS countries. The bank benefits from strong capitalisation and liquidity metrics, although funding may be confidence-sensitive as it consists of retail deposits sourced via the Internet and corporate deposits. Profitability is only moderate and exhibits some volatility due to the lack of diversification of the bank and the modest granularity of the loan portfolio. In Moody’s opinion, the bank’s financial fundamentals are relatively solid overall but commensurate with the bank’s risk profile. As a result of our assessment of the degree of strategic, financial and operational interconnectedness with the parent, ATB’s BCA has been aligned with that of Alfa-Bank, at ba2.

The stable outlook on the bank’s ratings reflects the rating agency’s view that the currently foreseen risks to creditors are fully reflected.

A rise of ATB’s BCA would require both an uplift in Alfa-Bank’s BCA and the following factors : (1) a decrease in risk appetite, reflected in lower borrower and country concentration levels; and (2) a decrease in related-party exposures. An uplift in ATB’s BCA would result in an upgrade in the bank’s long-term ratings in the same order of magnitude. A lowering of ATB’s BCA could be triggered by (1) a lowering of Alfa-Bank’s BCA; (2) a deterioration in the bank’s financial fundamentals, notably asset quality, which could be the consequence of adverse fluctuations in energy and raw material prices and a slowdown in emerging/developing economies where ATB is doing business. A lowering of ATB’s BCA may result in a downgrade of the bank’s long-term ratings, unless Moody’s moderate parental support assumptions translate into rating uplift.

Alfa-Banking Group includes Alfa-Bank Russia which is today one of the leading privately owned banks in Russia. It also includes Alfa-Bank Ukraine, one of the largest banks in Ukraine. Alfa-Banking Group also comprises banks in the Netherlands, in Belarus and in Kazakhstan as well as presence in Cyprus, the United States and the United Kingdom. The Group offers a wide range of products and operates in all sectors of the financial market, including corporate and retail lending, deposits, payment and account services, foreign exchange operations, cash handling services, custody services, investment banking, trade finance and other ancillary services to corporate and retail customers.

Amsterdam Trade Bank N.V., incorporated in October 1994 in Amsterdam, holds a full banking license from the Dutch Central Bank. In March 2001, Alfa-Bank Russia acquired a 100% interest in ATB. ATB aims to be the bank of choice for financial interactions between the CIS and the European Union. ATB has made important steps towards implementing and executing the newly established strategy with a main focus on commercial lending, structured trade finance and treasury.