27 May 2004 03:55
Fitch upgrades Promsvyazbank to `B`
MOSCOW. May 27 (Interfax) - Fitch Ratings has upgraded the Long-term rating of Russia's Promsvyazbank (PSB) to
'B' from 'B-' (B minus), the rating agency said in a press release Thursday.
Following the upgrade, the Outlook is now Stable. The other ratings have been affirmed at Short-term 'B',
Individual 'D' and Support '5'.
The upgrade reflects the continued growth and development of the bank's business and the improving operating
environment in Russia. In addition, the ratings reflect the bank's competitive cost base and adequate
capitalization. The latter should remain at a reasonable level, even with expected rapid balance sheet growth, as a
result of future planned capital injections and internal capital generation. However, Fitch also notes the relatively
low reserve coverage of the bank's rapidly expanding loan portfolio, the high concentration on the both sides of
the balance sheet and its moderately high market risk appetite.
Net income increased in 2003 due to the absence of the inflation adjustment, strong lending growth outweighing
falling margins, and rising fee and commission income. Securities trading gains were at a similar level to 2002, despite
losses being posted in the second half of 2003. Given the margin pressure faced by Russian banks and the ambitious plans
for network expansion, it is important that the bank controls its costs, if it is to have a reasonable level of
profitability in the future.
The customer loan portfolio grew very rapidly in 2003, and its sectoral diversification has improved. That said, loan
concentration by customer remains high, albeit not unusually so for a Russian bank. Loan loss reserve cover of impaired
loans improved to a more reasonable level. However, it is still not strong and, in Fitch's opinion, the 2% reserve
held against standard loans is on the low side, although the same approach is used by most Russian banks rated by the
agency.
Strong growth in customer funding has reduced the level of concentration on the liability side of the balance sheet,
although it is still significant. Due to the loan growth and the lengthening maturity profile of assets, liquidity has
tightened and, in 2003, PSB became a small net borrower in the interbank market. The level of concentration in the loan
book, plus the considerable growth of investments in land and buildings, compromises the flexibility and quality of
capital. However, thanks to a policy of full earnings retention and share issues in 2002 and 2003, the bank's
capitalization is adequate. Further capital injections are likely to be necessary to support PSB's business
development plans, and injections are planned for the second half of 2004.
Promsvyazbank was ranked number 17 by asset volume in the Interfax- 100 list of Russia's banks in the first
quarter of 2004. The list is compiled by the Interfax Center for Economic Analysis. [RU ASIA EUROPE EEU EMRG AAA BNK]
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