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Research Update: Cyprus-Based RCB Bank Ltd. Ratings Lowered To 'B+' And Placed On CreditWatch Negative

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Research Update: Cyprus-Based RCB Bank Ltd. Ratings Lowered To 'B+' And Placed On CreditWatch Negative

Overview

  • On Feb. 24, 2022, VTB Bank PJSC sold its 46.3% stake in Cyprus-based RCB Bank to the bank's Cypriot shareholders, who represent the management. The sale was made as part of management's plan to protect RCB Bank from escalating geopolitical tensions.
  • RCB Bank's business prospects will likely be affected by weakened volumes, lack of support from VTB Bank (previously its largest shareholder), business origination, and the potential second-hand effects of Russian economic activity, including deposit run-offs.
  • We therefore lowered our long-term issuer credit rating on RCB Bank to 'B+' from 'BB-' and placed it on CreditWatch with negative implications.
  • The CreditWatch placement reflects our view that the potential further deterioration of the situation related to sanctions on Russia could have a negative effect on RCB Bank's financial profile.

Rating Action

On March 8, 2022, S&P Global Ratings lowered its long-term issuer credit rating on Cyprus-based RCB Bank Ltd. to 'B+' from 'BB-' and placed the ratings on CreditWatch with negative implications. At the same time, we affirmed our 'B' short-term issuer credit rating.

Rationale

We think that RCB Bank has been protected through a mix of forward planning actions and a change of control.  VTB Bank's sale of its stake in RCB Bank contributed to alleviating RCB Bank's financial profile. Additionally, RCB Bank's capitalization and risk profile have somewhat improved, through RCB Bank's unwinding of its largest loan in Kazakhstan, which made up over 30% of its loans. As a result, we now expect our risk-adjusted capital ratio to be sustainably above 10%. The loan book is now also more granular, provided there are no further shocks that affect the bank. RCB Bank also increased its long-term funding through the issuance of a €200 million senior-nonpreferred instrument and a €300 million term deposit (both funded by VTB Bank), providing some buffer for customer deposit outflows.

RCB Bank's business prospects and the sustainability of its business model will be hampered by its new stand-alone model. Without VTB's support for business growth, the bank will have to reshuffle its business strategy. In our view, this will take time, and might be complicated given the bank's niche and limited franchise. Meanwhile, reduced loan volumes, which declined by over 30% following the unwinding of RCB Bank's largest loan in January 2022, and volatile market conditions will likely weigh on the bank's profitability prospects in the next 12-18 months. RCB Bank's market franchise in Cyprus is limited compared with the two largest players (about 8% loan market share). Also, its niche focus might hamper its business profile due to second-hand effects from the military conflict between Russia and Ukraine.

Given the uncertainty on several factors, we think that the ratings on RCB Bank could come under further pressure.  The regulatory approval needed from the European Single Supervisory Mechanism for the change of control, potential changes to the capital management policy under new business plans, possible further customer deposit outflows, or, in a more adverse scenario, regulatory sanctions could all weigh on the ratings on RCB Bank.

CreditWatch

The negative CreditWatch placement reflects our opinion that the increased geopolitical and economic risks to the Russian economy could further constrain RCB Bank's customer deposit outflows and its funding profile. It also reflects the uncertainties on the pending regulatory approval and any potential governance risks that could arise from historical links between RCB Bank and VTB Bank.

We aim to resolve the CreditWatch once we have more clarity on the full macroeconomic repercussions of the sanctions against Russia and its related entities and the evolution of the geopolitical conflict, as well as visibility on the volatility of RCB Bank's customer deposits, and the regulatory approval of the change of control.

Related Criteria

Ratings List

Downgraded; CreditWatch Action; Ratings Affirmed
To From

RCB Bank Ltd.

Issuer Credit Rating B+/Watch Neg/B BB-/Stable/B

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. A description of each of S&P Global Ratings' rating categories is contained in "S&P Global Ratings Definitions" at https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352 Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; or Stockholm (46) 8-440-5914

Analytical Group Contact:Financial Institutions EMEA;
Financial_Institutions_EMEA_Mailbox@spglobal.com

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