Moody’s Rating Agency affirms Bank Vozrozhdenie’s ratings

24 March 2009

Moody’s Investors Service has today affirmed the bank’s D- bank financial strength rating (BFSR), the Ba3/Not Prime local currency and foreign currency deposit ratings and the national scale rating. The outlook on Bank Vozrozhdenie’s ratings was changed to negative from stable primarily due to worsening macroeconomic environment in Russia.

“External factors were the main reasons of the outlook change. Same rating actions have already been made on many state and private Russian banks. Bank Vozrozhdenie had anticipated possible economic situation deterioration in 2008 and thus tried to meet it accordingly prepared. We tightened lending standards and managed our liquidity position very conservatively. Ratings affirmation at current levels testifies the effectiveness of risk-management improvement, healthy assets and liabilities maturities match and substantial growth of the overall business efficiency. We believe the bank can keep the quality of the credit portfolio at comfortable levels and delver positive financial result for 2009”, noted Andrey Shalimov, member of the Management Board and Head of Treasury.

The current rating level is supported by the good geographical diversification of the bank’s business in 20 regions of Russia, its strong brand, growing efficiency of expenses control and sound risk management. The bank’s broad experience of managing the business in economic recession was proved by successful overcoming all the previous banking crises.

Moody’s rating action was driven by expectations of significant asset quality deterioration due to external factors; growth of provision charges; and the industry-specific and single-name exposures taken on by the bank. These factors could translate into a deterioration of financial fundamentals of Bank Vozrozhdenie over the course of 2009. In Moody’s opinion the credit losses expected to materialise over the next year will weaken the bank’s capital position, but the expected weakening, however, is partially mitigated by the bank’s currently high capitalization level and solid earning generation capacity. The bank’s management believes that Vozrozhdenie’s conservative approach to credit quality management will help to keep loan portfolio losses at much lower levels than many analysts are currently forecast.

Moody’s notes the bank’s significant credit exposures to entities associated with Moscow Oblast’ of Russia (rated B3, on review for possible downgrade), which currently jointly account for ca.13% of the bank’s capital, exposing the bank to the performance of a limited number of names, thus materially increasing its risk profile. Vozrozhdenie had been working with Moscow Oblast’ and related companies successfully for a number of years and on all occasions they met and continue to meet all their obligations to the bank in full amount and in timely manner. In our opinion Moscow Oblast’ is one of the key Russian regions with good perspectives whose short-term financial difficulties will be resolved with federal support.

Moody’s highlights V-Bank’s vulnerability to a depositor sentiment — approximately 40% of the bank’s liabilities are funded by customer deposits, which may be subject to withdrawals prior to their contractual maturity if depositor confidence in the bank were to weaken, thus putting a strain on the bank’s currently sound liquidity profile. We consider retail deposits as our core source of funding not once tested in difficult times. We experienced some outflow of individuals savings in tough fall conditions but currently retail clients’ funds in ruble terms reached their early October 2008 level.

Moody’s previous rating action on V-Bank was on 4 May 2007 when the ratings of Russian banks were revised as part of the application of the joint default analysis (JDA) and updated bank financial strength rating (BFSR) methodologies. V-Bank’s BFSR was upgraded to D- from E+. The local currency deposit rating was assigned at Ba3/NP. The foreign currency deposit rating was upgraded to Ba3/NP from B1/NP. The long term National Scale Rating was upgraded to from The outlook on all of the bank’s ratings was stable. All the ratings remained the same during 2008.

The Board of Directors of Bank Vozrozhdenie held its regular meeting
Vozrozhdenie Bank 2008 IFRS Profit of 3,137 million rubles, changed by 65% comparing to 2007 result