Despite experiencing financial growth for the first time since 2009, Fitch ratings has given Russian bank Rossiya an IFS rating of ‘B-‘ and a National IFS rating of ‘BB-‘, with a negative outlook.
The ratings company justified the negative outlook by saying there is limited evidence that the bank will achieve a “sustailable improvement of its underwriting performance in the medium term”. Fitch credited Rossiya’s last term growth to the compulsory motor third party liability (MTPL) insurance business, and said that this strategy was unhealthy for the bank.
Fitch also said that Rossiya’s commission levels are too high for the market they deal in (mainly the motor business), and that to lower this would be very challenging considering the medium size and limited bargaining power the bank holds.
The agency said that it fears if Rossiya doesn’t improve it’s underwriting performance, it will lose the support of its shareholders which would resolve in further losses, and a further downgrade.
Fitch finished by saying that “Rossiya has an investment policy involving significant risks and [we] considers this to be a rating constraint. The agency notes that the investment policy creates additional risks for the capital when the underwriting performance is loss-making. Fitch sees no potential for positive rating actions in the absence of improvements in the investment risk management area”
