OREANDA-NEWS. S&P Global Ratings said today that it has affirmed its 'B+/B' long - and short-term counterparty credit ratings on Russia-based West Siberian Commercial Bank (WSCB). The outlook is negative.

The 'ruA' Russia national scale rating on WSCB was affirmed.

In 2016, WSCB's capitalization levels have improved beyond our expectations, supported by some strengthening of margins since 2015. We think the bank will maintain at least adequate capitalization over the next 12-18 months. Specifically, we forecast our risk-adjusted capital (RAC) ratio for the bank (before adjustments for diversification and concentration) at 8.1%-8.3% over the next 12-18 months, compared with 8.45% at year-end 2015.

We believe the bank's net interest margin will gradually recover to 5.0%-5.5% by 2018 as assets and liabilities are repriced, but remain significantly below the 7.3% observed in 2012-2014. Also, we do not expect growth of risk-weighted assets to exceed 10% per annum because WSCB continues to exhibit a low appetite for growth, particularly in risky segments. Our forecast is based on our assumption of relatively moderate dividend payouts of Russian ruble (RUB) 100 million (about $1.5 million) to RUB300 million or 15%-20% of net income in 2016-2018. We do not incorporate new capital injections from the shareholders because, according to our understanding, management considers the bank's internal capital buffers to be sufficient.

We expect WSCB's annualized credit cost to stay within the 1.4%-1.6% range, reflecting rather good operational performance through the economic cycle. The average cost of risk was 1.1%-1.2% over the past 10 years, which is better than that of most peers.

Although the share of equity formed by property revaluation remains material (13% of total adjusted capital at year-end 2015), it does not exceed that of comparable banks.

At the same time, we note that the macroeconomic conditions in Russia remain challenging for the banking sector. Therefore, there is significant risk to our base-case forecasts, which might result in WSCB's new business generation being considerably weaker, cost of risk higher, and profitability and capitalization lower than we currently expect, as is reflected in our outlook.

The negative outlook on WSCB reflects the difficult operating environment and its potential effect on WSCB's profitability and cost of risk.

We might lower the ratings if the bank faced material challenges due to the economic slowdown in Russia leading to further erosion of asset quality and substantially higher credit losses than we currently expect. We could also consider lowering the ratings if any strain on capitalization caused the RAC ratio before adjustments to fall below 5%.

We could revise the outlook to stable if macroeconomic conditions in Russia were to improve significantly, which we consider to be a remote probability in the next 12-18 months.