Moody’s Interfax Rating Agency upgrades Vozrozhdenie bank to Baa2 (rus)

13 October 2004

MOSCOW. October, 13 — Moody’s Interfax Rating Agency has upgraded the long-term national scale credit rating of “Vozrozhdenie” bank to Baa2 (rus) from Baa3 (rus) and affirmed the short-term rating at RUS-3.

MOSCOW. October, 13 — Moody’s Interfax Rating Agency has upgraded the long-term national scale credit rating of “Vozrozhdenie” bank to Baa2 (rus) from Baa3 (rus) and affirmed the short-term rating at RUS-3.

The rating upgrade reflects a substantial reduction in the concentration of the bank’s loan portfolio, especially as regards its largest borrower, the expansion of the client base and growing capitalization. The bank’s rating is determined by strong market positions in the Moscow region, a diversified customer base and the stability of the bank’s liabilities. The rating is constrained by the risk of another restructuring of the bank’s largest loan and comparatively low profitability.

The bank’s main business is concentrated in the Moscow region, which is one of the country’s fastest growing regions with high per capita incomes. Some 36 of the bank’s 59 branches are in the Moscow region, which accounts for 47% of all the bank’s deposits and over 26% of loans. The bank’s brand is well known and its 36 branches make it possible to serve clients throughout almost the whole region, giving the bank a strong market position.

The bank’s client base is relatively broad and diversified. The loan portfolio is dominated by industry and trade, with some loans extended in cooperation with the administrations of the city of Moscow and the Moscow region. At the end of 2003, there was an increase in the proportion of loans to financial organizations whose main business is operations with real estate, which represents a fairly considerable industry concentration.

As of July 1 this year, the bank’s ten largest borrowers accounted for 19.3% of the loan portfolio. The level of risk carried on the largest borrower decreased considerably compared to the beginning of the year, dropping from 6.2% to 3.0% of the loan portfolio. The bank’s largest loan, to automaker Moskvich, is problematic and amounted to 22.3% of the bank’s capital on July 1. Moskvich is under outside administration, and the bank is trying to secure status as a priority creditor in case the plant declares bankruptcy. The bank in June classified the loan as overdue and has formed provisions that cover 100% of the loan with strong security.

The risks of diverging assets and liabilities by duration are offset by the bank’s low dependence on large creditors and the stability of its resource base. The high proportion of retail deposits in liabilities presents a certain danger in crisis conditions in the absence of a deposit guarantee system.

The bank’s profitability is constrained by high operating expenses, and is relatively low despite the comparatively high interest spread and margin.

The Baa2 (rus) long-term rating on the Moody’s Interfax Rating Agency national scale reflects adequate creditworthiness in comparison to other Russian borrowers. The rating indicates that borrowers can meet financial obligations in favorable conditions, but are vulnerable to negative changes in external conditions.

The short-term RUS-3 rating on the Moody’s Interfax Rating Agency national scale signifies a high level of creditworthiness compared to other Russian borrowers/debt.

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