The downgrade of Petrocommerce's rating is driven by (1) its weak
profitability stemming from recently high provisioning charges against
problem loans; and (2) its deteriorated capital levels.
announced sale of Petrocommerce to
audited financial statements for 2013.
Please see ratings tab on the issuer/entity page on moodys.com for
information on Global Scale Rating.
--- WEAK PROFITABILITY
New provision charges, largely from the bank's recently recognised legacy
problem loans, meant that
billion (according to audited IFRS) in 2013. As of year-end 2013, the
level of Petrocommerce's problem loans (defined as individually impaired
in the corporate segment, and 90+ days overdue in the retail segment)
remained significant: 22% of the gross loan book (2012: 23.7%), despite
sales of a portion of the bank's problem loans in 2013. Most of these
problem loans are concentrated in the corporate segment, representing
legacy loans that Petrocommerce originated before the 2008-09 global
financial crisis. In
these problem loans is limited over the next 12-18 months.
business Petrocommerce demonstrated weak pre-provision income (net of
gains from the sale of loans to the shareholder) relative to total
assets: year-end 2013: 1.3% and year-end 2012: 1.6%.
--- DETERIORATED CAPITAL LEVELS
On the back of this adverse performance, Petrocommerce has a modest
capital buffer with which to absorb potential losses arising from further
asset-quality erosion. This is because the bank reported substantial
erosion of its capital base, with the total capital adequacy ratio (CAR)
and Tier 1 ratio falling to 15.4% and 9.7% (Basel I), respectively, at
year-end 2013 (year-end 2012: 18.0% and 14.7%).
At the same time,
continue to support the bank, thereby helping to dilute problem assets as
a proportion of new performing loans, and optimising its organisational
loans are largely recognised, and their provisioning has improved.
According to the sale agreement, Petrocommerce's current major
institution, which also controls
OJSC (OFCB, deposits Ba3 stable; BFSR D- stable/BCA ba3) and its
thereafter, Petrocommerce will fully merge with OFCB under the latter
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