OREANDA-NEWS. Fitch Ratings has assigned Russian bank CJSC Peresvet Bank (Peresvet) Long-term Issuer Default Ratings (IDRs) of 'B+'. The Outlooks are Negative. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS: IDRS, VIABILITY RATING (VR), NATIONAL RATING AND SENIOR UNSECURED DEBT
Peresvet's IDRs are driven by its VR of 'b+', which reflects the bank's limited franchise with concentrated loans and deposits, and moderate (relative to the risk profile) capitalisation. However, the rating also reflects Peresvet's so far reasonable asset quality, good profitability and acceptable liquidity.

The bank's business origination benefits from association with the Russian Orthodox Church (ROC) and the Chamber of Commerce and Industry of the Russian Federation (CCI), who are the main shareholders with 49.9% and 24.5% stakes, respectively. The Negative Outlook on the IDRs reflects Fitch's expectation that the sharp deterioration in the Russian operating environment is likely to negatively impact Peresvet's credit profile, alongside those of other Russian banks.

The bank reported a low NPL ratio of 0.7%, 1.3x covered by reserves, at end-9M14. However, Peresvet's corporate loan book is highly concentrated, with the top 25 exposures accounting for 33.5% of gross loans at end-9M14. All of these are currently performing, but some may be more vulnerable to the current recessionary environment. In particular, Fitch identified RUB5.5bn (0.5x Fitch Core Capital (FCC) or 6.8% of total gross loans) of loans financing residential real estate construction in the Moscow region at different stages of completion. A further RUB5.5bn of loans were provided to car dealers, which have already seen a slump in sales. However, there is reasonable collateral against these exposures, which mitigates credit risk to a degree. The retail loan book is small (5% of total loans) with around 80% comprising low risk mortgages.

Customer funding is predominantly relationship-based and highly concentrated, making liquidity sensitive to the behaviour of a few large depositors. This risk is partially mitigated by the fact that the largest depositor (11.5% of total deposits at end-9M14) is one of the shareholders, as well as by a solid buffer of highly-liquid assets, covering 36% of customer accounts as at end-2014. Reliance on wholesale and bank funding is moderate (14% of liabilities at end-9M14) with potential for refinancing needs (put-options on bonds and short-term bank funding) in 2015 being well covered by liquid assets.

Peresvet has demonstrated strong profitability, with ROAE and ROAA of 23.3% and 2.2% in 2014. This was driven by high operating efficiency due to a small branch network and low cost of risk. However, Fitch expects profitability to come under pressure due to deterioration of the operating environment and higher funding costs.

The regulatory total and Tier 1 capital ratios were moderate at 13.3% and 11.2%, respectively, at 1 March 2015. The new RUB1bn placement of Tier 1 qualifying subordinated debt in March acquired by a third party will add about 90bp to the capital ratios. Fitch estimates that following this injection, the bank would be able to increase loan impairment reserves to 7.8% of the loan book from the current 2.5% before its regulatory capitalisation would reach the minimum allowed level.

RATING SENSITIVITIES: IDRS, VR, NATIONAL RATING AND SENIOR UNSECURED DEBT
The ratings could be downgraded in case of a material deterioration in asset quality and capitalisation, a significant liquidity squeeze or a further sharp weakening of the operating environment. A change in the shareholder structure or weakening of the bank's connections with the current shareholders, if this led to liquidity and/or franchise erosion risks, could also result in a downgrade.

A revision of the Outlook to Stable would require an improvement in the operating environment.

KEY RATING DRIVERS AND RATING SENSITIVITIES: SUPPORT RATING AND SUPPORT RATING FLOOR
Peresvet's Support Rating Floor of 'No Floor' and '5' Support Rating reflects the bank's limited systemic importance, as a result of which extraordinary support from the Russian authorities cannot be relied upon, in Fitch's view. Potential support from private shareholders is also not factored into the ratings, as it cannot be reliably assessed. Fitch does not expect any revision of the bank's SRF or Support Rating in the foreseeable future.

The rating actions are as follows:
Long-Term foreign currency IDR assigned at 'B+'; Outlook Negative
Long-Term local currency IDR assigned at 'B+'; Outlook Negative
Short-Term IDR assigned at 'B'
National Long-Term Rating assigned at 'A-(rus)'; Outlook Negative
Viability Rating assigned at 'b+'
Support Rating assigned at '5'
Support Rating Floor assigned at 'No Floor'
Senior unsecured debt rating assigned at 'B+'/'A-(rus)'; Recovery Rating 'RR4'.