Published: February 19, 2015
Bank points to "well-diversified funding structure" and expected uptick in line with new strategy.
Raiffeisen Bank International (RBI), an Austria-based, Central & Eastern Europe-focused banking group, tells EMEA Finance that its "well-diversified funding structure" should limit the impact of a credit downgrade from Moody's, which saw the rating agency drop the bank's long-term debt rating to Baa2 yesterday (February 18).
Christof Danz, the bank's head of PR international, tells EMEA Finance: "The downgrade of the ratings may potentially affect the pricing of some capital markets sensitive instruments. However in the context of our overall balance sheet, dependence on these types of instruments is relatively limited. We have a well-diversified funding structure, 60% of which consisted of customer deposits. We also have other funding instruments that are not capital market sensitive, such as private placements, local bond issuance, structured repos, money markets, supranational funding, etc. As a result of the recently-announced strategy update, we expect the loan-to-deposit ratio to further improve and as a consequence the relevance of capital market sensitive funding to further reduce. RBI's rating is now in line with the ratings of the other leading Austrian banks."
RBI's long-term debt rating by Moody's was downgraded from Baa1 to Baa2. Its standalone bank financial strength rating (BSFR) was also lowered from D- to D, in line with a downgrade in its baseline credit assessment from ba2 to ba3. The outlook for RBI's BSFR is negative. The action was triggered by the disclosure on February 9 of RBI's preliminary 2014 results which, according to the announcement by Moody's, highlighted "ongoing capital pressures that have prompted RBI to downsize and/or dispose important and sizeable parts of its operations." It added,
"In Moody's opinion, the strategic realignment carries execution risks in the current volatile market environment and will only benefit RBI's capitalisation over time. As a result, the group remains vulnerable to downside risk and volatility in key markets in Central and Eastern Europe and the Commonwealth of Independent States."
RBI's CEE focus has seen it pressured on all sides in 2015. It has €22bn of exposure to Russia, equal to three times its book value, and the decline in value of the rouble has led to fears of a dramatic spike in impairments as well as a big drop-off in profits. At the same time, the decision by the Swiss central bank to remove the peg connecting the Swiss franc to the euro has increased the chances of customers that have borrowed in Swiss francs not being able to service their debts.
On January 29 the bank's analysts told reporters that it was to cut its asset base by 20% by divesting non-core assets in the US and Asia, reducing its exposure to Russia and Ukraine, and selling Zuno, its Slovakian online bank. It also announced plans to let go of its Polish arm, Raiffeisen Bank Polska, though the sale has been obstructed by KNF, the Polish Financial Supervision Commission, which expects RBI to carry out an IPO. On moving into Poland through the acquisition of EFG Polbank in April 2012, RBI promised to float at least a 15% stake on the Warsaw Stock Exchange by the middle of 2016.
In January 2014 RBI carried out a €2.8bn rights issue ahead of the European Central Bank's stress tests. Its share price has fallen by around 56% since 22 January, the date of the share offer. Some of its local subsidiaries, meanwhile, have tapped the bond markets for funding.