LDN - Business

Bail-out a potential boost for Otkritie bank's rating: S&P global

[August 31, 2017] By Marc Jones

LONDON (Reuters) - Russia's pledges of support for bailed-out Otkritie could help the troubled bank's credit rating, S&P Global said on Thursday, though the situation will only be clear once the full details of the plan are made clear.

S&P rates Otkritie at the sub-investment grade B+ level and has had it on a downgrade warning since late last year on concern about a drain on deposits and takeovers of rival institutions.

This week's bailout will see the Russian central bank take up to a 75 percent stake in what is the country's biggest private lender and in the top eight overall in terms of assets.

"Compared to the issue of the bank facing a liquidity crisis and a large outflow of funds, the government saying it will support the bank and ensure payments are made, this is clearly something that is improving the situation," said S&P Russian banks analyst Natalia Yalovskaya.

On whether it could be enough to stabilize or even lift the bank's rating, she said some of the key details about the lender's rescue are still to be clarified.

"We need to understand the strategy of the central bank towards the bank and its future," Yalovskaya added. "Whether it will continue the same activity, whether it will change things, whether the shareholder structure should change, these are all important unknowns."

For the time being there is also uncertainty about the terms of Otkritie's rescue itself.

Authorities said on Tuesday when it was announced that there were no plans for the bank's creditors to share the cost of the plan -- a 'bail-in' in market parlance -- and this spurred a huge rally in the bank's shares and dollar bonds.

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A man walks past the logo of Russian bank Otkritie in Moscow, Russia August 30, 2017. REUTERS/Sergei Karpukhin

But its April 2019 bond tumbled all the way back to a record low on Wednesday and its shares <OFCB.MM> dropped to their lowest since the start of 2016 on Thursday, as fears lingered that holders of the lender's subordinated debt would be asked to contribute to its rescue.

The move to prop up Otkritie could also have knock-on effects for other Russian banks.

"We think the state-owned banks will be beneficiaries of the flight to quality," Yalovskaya said.

But "it would be unfortunate in our view if other (private) banks consider the case of Otkritie as the evidence of too big to fail theory, which may prompt them to assume the support of the government is there no matter how risky their behavior is."

"That may not be the case, each case would be considered individually by the regulator," she said.

Otkritie is not rated by rival rating agency Fitch but its sovereign analyst Erich Arispe said the move to rescue the bank "does not represent a risk for the sovereign’s balance sheet."

"Russian policy makers have made progress towards improving macroeconomic stability, enhancing the economy’s capacity to adjust to shocks and adjusting fiscal accounts," Arispe said.

(Reporting by Marc Jones; Editing by Hugh Lawson)

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