OREANDA-NEWS. S&P Global Ratings said today that it has revised its outlook on Russia-based RESO-Leasing to positive from stable.

At the same time, we affirmed our 'BB-/B' long - and short-term counterparty credit ratings and 'ruAA-' Russia national scale rating on the company.

The outlook revision stems from our view of RESO-Leasing as a strategically important subsidiary of Insurance Company RESO-GARANTIA, as well as improvements in the company's SACP. In particular, we now assess RESO-Leasing's risk position as adequate rather than moderate because it sustained the asset quality of its lease portfolio in 2015 and first-quarter 2016. This, combined with our view of the company's moderate business position, strong capital and earnings, average funding, and adequate liquidity, led us to reassess the company's SACP to 'b' from 'b-'.

We continue to view RESO-Leasing as a strategically important subsidiary of RESO-GARANTIA and therefore add two notches of uplift to RESO-Leasing's SACP, capping the long-term rating one notch below the group credit profile of 'bb'.

In our view, RESO-Leasing displays a prudent approach to provisioning compared with peers, and modest single-name concentration in the lease portfolio, which is backed by collateral. Contrary to our expectations, the company's credit costs ratio stood at 1.4%-1.5% in 2015 and first-quarter 2016, sustainably lower than the peer average. In addition, we observe a lower risk appetite, as shown by flat portfolio growth during that period. Consequently, we believe the company's lease portfolio is less vulnerable to the difficult operating conditions in Russia than its peers. We expect credit costs may rise in 2016-2017, but likely be below those of the company's closest peers.

In addition, we note that despite our forecast of higher nonperforming assets (NPA; including overdue leases and foreclosed assets held for sale), provisions covered 34% of NPA on Dec. 31, 2015, the highest coverage among peers. On the same date, provisions covered 4.5% of the company's lease portfolio, twice as high as that of peers, which we also view as a positive factor.

As of March 31, 2016, 70% of the company's leasing portfolio consisted of passenger cars. Despite RESO-Leasing's relatively small size, with assets of Russian ruble (RUB) 15.4 billion (close to $240 million) at the end of first-quarter 2016, it has a good niche position in the Russian passenger car leasing market, ranked in the top five in this segment. The company has an overall 6% share of the country's car leasing market. We regard as positive that the 20 largest lessors accounted for only 5% of total gross leases as of March 31, 2016, which is lower than that of peers.

The positive outlook on RESO-Leasing mirrors that on the company's parent, RESO-GARANTIA. The outlook also reflects RESO-Leasing's strong capital position and recurring earnings, despite deteriorating operating conditions in Russia, as well as its sustained asset quality and continued ongoing support from its parent.

We could raise our ratings on RESO-Leasing if we upgraded RESO-GARANTIA and there is no material deterioration of RESO-Leasing's SACP.

We could revise the outlook on RESO-Leasing to stable following a similar rating action on the parent. Additionally, a negative rating action could follow if we were to observe weakening of RESO-Leasing's strategic importance to RESO-GARANTIA, reflected for example in a partial disposal of the company or reduced commitment of support from the parent. A significant deterioration of RESO-Leasing's asset quality indicators or capital and earnings could also trigger a negative rating action.