08/17/1998 21:12:16 S&P revises counterparty credit on 6 Russian banks

NEW YORK, Aug 17 - Standard & Poor's today revised its long-term counterparty credit ratings on six Russian banks to not meaningful (N.M.) (see list below), because of the threat of imminent default on certain non-debt obligations. The ratings of the eurobonds and syndicated loans of Alfa Bank, SBS-AGRO Bank, and Rossiyskiy Kredit Bank, issued directly through the banks or through their guaranteed special purpose vehicles, are lowered to double-'C' from triple-'C' (See list below). The ratings remain on CreditWatch with negative implications. Standard & Poor's believes that the Russian banking sector is in a period of profound crisis, the resolution of which at this stage is unclear. The immediate reason for the rating changes reflects the announcement of a 90-day moratorium on the payment of all foreign-related obligations. Though details of the moratorium are uncertain, it appears to apply not only to debt issued by the banks (namely eurobonds or syndicated loans) but also margin calls and forward contracts with foreign banks. As a consequence, all large banks have suspended payments on their forward contracts, for example, the settlement of which was to take place today. Under Standard & Poor's criteria, this constitutes a default, whether or not it is the result of a force majeure. Standard & Poor's believes that this may be the first of a series of measures which will likely become apparent in the coming months. The double-'C' rating on debt obligations is the lowest possible for senior rated debt absent a default in that instrument, and reflects the potential for a systemic crisis in the wake of a sharp depreciation in the rouble. The syndicated loan of Rossiykiy falls due at the end of August and is presumably subject to the moratorium. SBS's loan matures after the 90-day period, as do payments under the Eurobond issues. In addition, the announcement of the widening of the dollar/rouble corridor should lead to a rapid depreciation in the value of the rouble. This will have a disastrous effect on the rated banks, most of whom have sizeable levels of foreign currency liabilities. Additionally, Standard & Poor's anticipates a "knock-on" effect on the asset quality of the banks, since many bank customers borrowed in hard currencies to avoid prohibitively expensive interest rates on rouble loans. Some of these have access to hard currency earnings but not all. Standard & Poor's believes that the sustained crisis in the financial sector, in particular losses on bond portfolios over the course of this year, has severely impaired the financial condition of the banks. The solvency of individual banks will only become apparent in the coming months. However, it appears that most banks, other than Imperial (counterparty rating of N.M.) will continue to service their rouble denominated obligations for the moment. The Central Bank of Russia has yet to make any official announcement regarding the banking sector and the policy it proposes to implement with respect to rehabilitating the banks. Several major banks are said to have received liquidity packages, though this has not been officially confirmed by the authorities. Twelve of the most important banks (Sberbank, Vnesheconombank, SBS-AGRO Bank, Inkombank, Most Bank, National Reserve Bank, Rossiyskiy Kredit Bank, Alfa Bank, Vneshtorgbank, MFK-Renaissance, Uneximbank, and Bank Menatep) have formed a group, under the auspices of the Central Bank of Russia, which will work towards reviving the domestic interbank market which is currently frozen. Standard & Poor's considers this an indication of these banks' importance to the system going forward. The CBR is providing liquidity to these banks, and it is possible that further attempts to restructure the banking system may revolve around these banks. Restructuring could accelerate the consolidation of the banking system, Standard & Poor's said. OUTSTANDING RATINGS REVISED AND REMOVED FROM CREDITWATCH NEGATIVE To From Alfa Bank/ Inkombank (AB))/ SBS-AGRO Bank/ Vozrozhdenie Bank/ Aljba Alliance/ Rossiyskiy Kredit Bank Counterparty credit ratings N.M. CCC RATINGS LOWERED AND REMAIN ON CREDITWATCH NEGATIVE To From Alfa-Russia Finance B.V. Senior unsecured debt (Gtd. Alfa Bank) CC CCC Medium-term notes program (Gtd. Alfa Bank) CC CCC Rossiyskiy Kredit Bank Bank loan rating CC CCC Rossiyskiy Kredit Securities B.V. Senior unsecured debt (Gtd. Rossiyskiy Kredit Bank) CC CCC Medium-term notes program (Gtd. Rossiyskiy Kredit Bank) CC CCC SBS-AGRO Bank Bank loan rating CC CCC SBS-Agro Finance B.V. Senior unsecured (foreign currency) (Gtd. SBS-AGRO Bank) CC CCC