OREANDA-NEWS. Fitch Ratings has assigned LLC Bank Avers (Avers) a Long-Term Issuer Default Rating (IDR) of 'BB-'. The Outlook is Stable. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
IDRS, VR AND NATIONAL RATING
Avers' Long-term IDRs are driven by its standalone creditworthiness as expressed by its Viability Rating (VR) of 'bb-'. The ratings take into account the bank's currently solid capitalisation, good asset quality and reasonable profitability. The ratings also reflect the benefits to business origination and performance from Avers' close cooperation with TAIF group (a large oil refining/petrochemical holding in Tatarstan ultimately controlled, like the bank, by individuals close to former head of the republic, Fitch understands) for which Avers performs treasury functions.

The ratings also factor in the bank's so far limited market franchise, significant loan concentrations, including in respect to companies from TAIF, and very high reliance on funding from TAIF and private shareholders, as well as a limited track record of operations under new management/strategy and rapid recent and planned growth.

Avers' asset composition reflects the bank's moderate risk appetite and the treasury function it performs for TAIF. Only one-third of assets are loans and the rest are securities and bank placements of good credit quality (about 97% of non-lending exposure was rated BBB-BB). NPLs (loans over 90 days overdue) were limited at 1.2% of the portfolio at end-1H15 and fully reserved. Corporate loans (85% of total loans) are concentrated with the top 20 borrowers comprising 73% of loans (87% of Fitch Core Capital (FCC)) at end-1H15. The largest of these was a working capital rouble-denominated loan to a company from TAIF, which was 60% covered by the borrower's foreign currency deposits (net exposure equal to 19% of FCC). Risks relating to this exposure are mitigated by the moderate counterparty risk, short-tenor, and cash coverage.

Other large loans were also of good credit quality due to borrowers' good financial metrics and/or adequate collateral coverage. Retail lending (15% of loans) was also of good quality, represented mostly by mortgages issued under state/regional programmes or loans to employees of TAIF.

Profitability is reasonable (ROAE of 11% in 1H15), supported by the moderate cost of funding (5-6%) reflecting significant placements by TAIF/shareholders.

Capitalisation is solid (regulatory Tier 1 ratio of 35% at end-2015, allowing for about 76% reserve coverage of the existing loan portfolio). Additionally, annualised pre-impairment profit for 1H15 would be sufficient to cover 13% of average loans. The bank plans to gradually decrease the capital ratio to about 20% during 2016-2020 as a result of expected growth and dividend pay-outs of around 60%-80% of net profits. However, according to management, the bank is planning to remain relatively risk-averse, and actual growth will depend on its ability to attract reasonably good borrowers in order not to compromise credit quality.

Funding is mainly from TAIF and the bank's shareholders (about 90% of liabilities) and is viewed as sticky by Fitch. Liquidity is significant (liquid assets covered over 80% of customer accounts at end-3Q15) and further supported by the short-term lending. Refinancing risk is negligible, as the bank is not present in capital/debt markets and loans from banks are also small.

SUPPORT RATING AND SUPPORT RATING FLOOR
The '5' Support Rating and 'No Floor' Support Rating Floor reflect the bank's small size, market shares and retail deposit franchise, making government support uncertain. In Fitch's view, support from the bank's private shareholders, while possible, can also not be relied upon.

RATING SENSITIVITIES
IDRS, VR, NATIONAL RATING
The bank's IDRs could be downgraded if rapid growth results in asset quality becoming compromised, and capitalisation weakens without being supported by new injections. The ratings could be also downgraded if the current benefits of cooperation with TAIF reduce.

Upside potential for the ratings is limited in the near term given the bank's small franchise, short track record under new management and the weak operating environment. However, greater business diversification and a longer track record of good performance would be positive for the credit profile.

The rating actions are as follows:

Long-term foreign currency IDR: assigned at 'BB-', Outlook Stable
Long-term local currency IDR: assigned at 'BB-', Outlook Stable
Short-term foreign currency IDR: assigned at 'B'
Viability Rating: assigned at 'bb-'
Support Rating: assigned at '5'
Support Rating Floor: assigned at 'No Floor'
National Long-Term rating: assigned at 'A+(rus)', Outlook Stable.