Fitch confirms Vneshtorgbank's ratings

Fitch Ratings international agency confirmed the ratings of Russia's Vneshtorgbank: long-term rating at the level of BB+, stable forecast, short-term rating at the level of B, individual rating - C/D and support level at 3.

The agency's report says that Vneshtorgbank confirmed the ratings after the agency had received the information and explanations on the recent purchase of Guta-bank. The purchase of the 86% share holding of Guta-bank, one of Russia's 25 largest banks, at a dime-a-dozen price of 1 million rubles (about $34 thousand) was announced by Vneshtorgbank this week.

Earlier this month, Guta-bank became the largest of the Russian banks that suffered from the banking sector's panics, which entailed plunge in liquidity. To back the transaction, Russia's Central Bank placed a deposit of $700 million in Vneshtorbank for one year (with potential extension for another year) under LIBOR. Part of the deposit's assets will be used for providing Guta-bank with liquidity so that it may resume operations.

Fitch points out that judging from the latest information on Guta-bank this purchase does not affect Vneshtorgbank's individual rating by itself. Vneshtorbank will have to complete verification of Guta-bank's balance, however the acquired assets are expected to amount to at least $900 million (under Russian accounting standards). At the same time, Vneshtorbank's consolidated assets amounted $11.3 billion (under international accounting standards) as of late 2003 and, most likely, reached $14-15 billion by mid-2004, while the amount of the bank's own assets was at the level of $2.5 billion. "Judging by the balance developed under Russian accounting standards, Guta-bank was solvent at the moment of its purchase by Vneshtorgbank, its problems were mostly related to liquidity", the agency points out.

The agency assumes that a certain level of risk remains, because Vneshtorgbank's verification of Guta-bank's balancehas not been completed yet. "However, Vneshtorbank's available assets on account of the Russian Central Bank's cheap deposit as well as backing of Guta-group's other assets and the difference in size between Vneshtorgbank and Guta-bank mitigate the risk to a certain extent", believes Fitch.

Vneshtorbank's long-term rating is positively influenced by the potential state's support (Russian long-term credit rating in foreign currency - BB+), if necessary. Following the financial crisis of 1998 Vneshtorgbank received liquidity and capital support from the Russian Central Bank, which was Vneshtorgbank's shareholder at this time. Fitch believes that the potential of receiving support by Vneshtorgbank and Sberbank went up over the two recent months, while they were taking steps to enhance the stability of the banking system, which "proved to be vulnerable to disturbances".

Vneshtorgbank was established in 1990 and inherited the mangers, personnel and clients of the former Vneshtorgbank of the USSR. Vneshtorgbank's history is linked to serving large Russian corporations, particularly those involved in foreign trade. Vneshtorgbank is also an active participant of the currency market and the government debt instruments market. Recently, the bank diversified its activities by offering the banking services to private persons and small and medium business enterprises. From this viewpoint Guta-bank's affiliates chain is of interest for Vneshtorgbank, Fitch points out.

Guta-bank was established in 1991 as part of Guta-group, which held most of the bank's shares. The group's interest are related to confectionery and motor industry, insurance and tourism. The group's revenues are evidently lower then those of Vneshtorgbank.