OREANDA-NEWS. The rating cut (from “AA-” to “A” on the national scale and from “BBB-” to “BB+” on the international scale) reflects a downward trend in business activity coupled with a weakening of key financial indicators.

The rating is based on the financial strength of the Bank's owners (among them international financial organisations), an established market presence, a positive international reputation and healthy growth potential.

Constraining factors include risks arising from dependence on a single majority shareholder, a potential loss of market position, high credit risks and low returns on core operations.

MDM Bank is a larger private-sector universal bank formed in August 2009 from the merger of MDM-Bank into URSA Bank. The Bank is controlled by Sergei Popov, the owner of the pre-merger MDM-Bank; several Russian and foreign private and institutional investors hold minority stakes. The Bank operates a wide branch network and is an established player in the national market that benefits from a positive international image, as well as its owners' financial resources and political ties at the federal level. At the same time relative to competitors MDM's position has weakened noticeably across all main lines of business due to a slow post-crisis recovery and stagnant business in an actively expanding market.

Capital is sufficient and of satisfactory quality but investments in subsidiary companies have been trending noticeably upward. External liabilities are declining; diversification by instrument type is moderate, with retail deposits playing the largest role, while concentration by individual corporate client and reliance on affiliated funding sources are also judged moderate. Asset quality appears less than satisfactory given an ongoing high percentage of problem loans, the doubtful quality of the Bank's share portfolio and significant holdings of non-profile assets. Financial results for 2013 were negative. Current liquidity is sufficient but long-term risks to liquidity are elevated. Overall risk sensitivity is likewise elevated.