Fitch changes NOMOS-Bank’s Outlook to Positive

Fitch Ratings has changed the Outlooks on Russia-based NOMOS-Bank’s (Nomos) Long-term Issuer Default rating (IDR) and National Long-term rating to Positive from Stable,the ratings agency said in a statement on July 16.

In addition,the bank’s National Long-term rating is upgraded to “A(rus)” from “A-(A minus)(rus)”. Nomos’s other ratings are affirmed at Long-term IDR ’B+’,Short-term IDR ’B’,Individual “D” and Support “5”. Fitch has also revised the Support Rating Floor to “B-” (B minus) from “No Floor”.

“The Positive Outlook reflects the continued broadening and regional diversification of the bank’s customer franchise,as well as its extended track record of sound performance and acceptable asset quality. The new Outlook also reflects the gradually improving operating environment and prospects for larger Russian banks,” say Vladimir Markelov,Associate Director of Fitch’s financial institutions team in Moscow.

The recent entry of foreign shareholders might also bring technical expertise,particularly in retail lending. Furthermore,the burden of capital and,potentially,liquidity support could be shared among a wider shareholder group.

On the other hand,the ratings remain constrained by refinancing risk stemming from the bank’s dependence on short-term domestic funding. The ratings also consider Nomos’s loan concentration,market risks arising from its sizable trading portfolio,and risks associated with rapid asset growth,including potential worsening of asset quality and pressure on capital. There is also some uncertainty over the future scope and nature of the business relationship between the foreign and Russian shareholders,both in respect to Nomos and other assets,the statement says.

A lengthening of the bank’s funding maturity profile and further franchise expansion,while maintaining its good asset quality and adequate capitalization could result in an upgrade. A revision of the Outlook back to Stable or downward pressure on the ratings might arise from either a weakening of the liquidity profile or asset quality problems.

The revision of the Support Rating Floor reflects Fitch’s view that,in case of need,there should be a greater probability of support from the Russian authorities in the light of the bank’s increased size and strengthened regional franchise,the statement says. However,the Support Rating Floor remains below the “B” Support Rating Floors of other Russian banks — OJSC Alfa-Bank (’BB’/Stable),MDM Bank (’BB’/Stable),Promsvyazbank (’B+’/Positive) and Bank Uralsib (’B+’/Stable) — given their somewhat greater franchise and systemic importance.

At end-Q108,Nomos ranked 14th by assets among Russian banks (fifth among privately,domestically owned institutions) with a 1% market share (0.4% in retail deposits). Its existing network comprises 18 branches,around 30 outlets and one regional bank. Nomos is 50.1%- controlled by six local individuals with long-standing business ties,with the rest owned by two foreign shareholders,the Czech-based PPF and Slovakia-based J&T group. It is primarily a corporate bank that has close relationships with some of Russia’s large and mid-sized companies in the mining and energy sectors. A broadening of the corporate customer base and retail lending expansion are being pursued,particularly with the assistance of foreign shareholders.