Bank Imperial Asgnd B+ Counterpty Rtg by S&P; Otlk Stbl.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 2/12/98--Standard & Poor's today assigned its single-'B'-plus long-term counterparty rating to Bank Imperial.

The rating outlook is stable.

Bank Imperial's rating is based on its close association with OAO Lukoil (Lukoil), Russia's largest vertically integrated oil company (rated double-'B'-minus by Standard & Poor's), and RAO Gazprom (Gazprom), Russia's major gas producer and exporter. Both entities provide the bank with a significant level of business and are key minority shareholders, likely to provide support if required. Nevertheless, a lack of clarity surrounds the ultimate control of the bank. In addition, although the bank has a franchise in the important oil and gas industries, large concentrations in its balance sheet represent notable risk. The bank's management appear sophisticated by sector comparison, however, and capitalization is adequate. The rating also reflects the high risk of operating in the embryonic Russian financial sector.

The bank is considered a cross between a commercial bank and a finance vehicle for Lukoil and Gazprom, as both companies extend large amounts of financial business to the bank and are minority shareholders. As a result, it is likely that support would be forthcoming from both entities if required. The bank's current shareholder structure and business base give rise to a lack of clarity, however, regarding its ultimate control and purpose. The bank appears to be under the control of both Lukoil and Gazprom, given the level of influence these entities have over the bank's strategic direction and the level of business they give to the bank. These entities are only minority shareholders, however. The bank's management actually has the controlling stake, suggesting a degree of independence. The bank's links to Lukoil and Gazprom mean that its business base is heavily weighted towards the lucrative and strategically important Russian oil and gas industries. This has generally positive implications for asset quality. Nevertheless, this is something of a double-edged sword, as the bank's reliance on these entities for business opportunities has resulted in a lack of business earnings, and balance sheet diversity, and has created significant concentration and related party risk. Assets are predominantly denominated in loans which are concentrated by borrower, industry, and geography. Related-party lending is also high. Although the related parties in this instance are among the most important in Russia and therefore should have a favorable effect on asset quality, Standard & Poor's believes that high concentrations are a negative ratings factor.

Bank Imperial's management has a fair depth of banking experience relative to peers, however. While difficulties in borrower assessment remain, management has established clear credit and risk-management policies. Capital is also strong by international comparison, as measured by a ratio of common equity to assets of 14.88% at Sept. 30, 1997. Such a level of capital is nevertheless considered appropriate for the bank, given the greater potential for unexpected shocks in the Russian banking sector.

OUTLOOK: Stable.

The outlook reflects the belief that the bank will maintain its current status, that shareholders will continue to provide the current level of business with the bank, and reflects the intrinsic strength and implicit support of the bank's shareholders, Standard & Poor's said. --- CreditWire

CONTACT: Moira Taylor, (44) 171-826-3519 London

Richard Thomas, (44) 171-826-3627 London

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