ACRA affirms ААА(RU) to Credit Agricole CIB AO, outlook Stable

The credit rating of Credit Agricole CIB AO (hereinafter, the Bank) is based on the high likelihood of strong support from its main shareholder Credit Agricole CIB. The Bank’s standalone creditworthiness assessment (SCA) is high, which is supported by its adequate business profile, substantial capital buffer, adequate risk profile, and adequate funding and liquidity.

The Bank provides integrated banking services (lending, guarantees and letters of credit, trade finance, treasury) to large Russian companies and multinational corporations operating in Russia. As of end-June 2020, the Bank ranked 71st in terms of equity and 84th in terms of assets in the Russian market.

The Bank is wholly owned, directly or indirectly (through Credit Agricole CIB Global Banking), by Credit Agricole CIB, a subsidiary of Credit Agricole S.A., a diversified banking holding, whose assets are located in the EU (predominantly France and Italy) the UK, the US, Asia-Pacific (including Japan), and other countries.

Key rating assessment factors

High likelihood of strong shareholder support. ACRA believes that if necessary, Credit Agricole S.A. (hereinafter, the Group), acting through Credit Agricole CIB (hereinafter, the Supporting Organization, or SO), may support the Bank with long-term and short-term funding, as well as capital injections (currently, the Bank has excessive capital). ACRA assesses as strong both the country risk of jurisdiction of the Supporting Organization compared to the country risk of Russia and the creditworthiness of the Supporting Organization.

ACRA believes that the degree of association between the Bank and the Supporting Organization is strong based on the following:

  • 100% of the Bank’s shares are owned by the Supporting Organization;
  • The Supporting Organization pursues its Russian corporate business strategy through the Bank;
  • The Russian banking market is of high importance for the Supporting Organization;
  • The operational integration between the Bank and the Supporting Organization is significant in corporate management and risk management;
  • The Supporting Organization acts as a guarantor on a range of loans issued by the Bank.

In view of the small size of the Bank compared to the Supporting Organization and the high reputational risks the Group would face were the Bank to go bankrupt (taking into account the scope of its Russian business), the resulting credit rating of the Bank is on par with the Russian Federation.

The Bank’s adequate business profile assessment stems from its strong positions in servicing large Russian companies and multinational corporations operating in Russia. The scope of the Group’s Russian business significantly exceeds the assets of the Bank, as a substantial portion of credit risks is posted on the balance sheet of the SO or balance sheets of other banks in the Group.

Substantial capital adequacy margin amid low operational efficiency. High capital adequacy (N1.2 averaged 17.2% for the twelve months prior to July 1, 2020) allows the Bank to withstand a substantial increase in the cost of credit risk. As the credit portfolio risks are nearly 100% secured by the guarantees of the SO, ACRA believes that the likelihood of the stress scenario is extremely low. At the same time, the Bank’s profitability ratios were not high (ROA averaged 0.2% and ROE averaged 1.7% in 2017–2019, as calculated based on net income) due to the low operating efficiency of the business: the average NIM for 2017–2019 amounted to 2.4%, while CTI was 89%. However, ACRA notes that the assessment of profitability and efficiency does not take into account the income generated on the balance sheet of the SO.

Adequate risk profile assessment. The risk management contributors include transparency, adequate regulation, high underwriting standards, and sufficient control on the part of the Supporting Organization and the Group. The core of the portfolio includes loans provided to the largest Russian companies and subsidiaries of multinational corporations, whose credit quality is high. The Bank’s loan portfolio is characterized by high concentration (as of December 31, 2019, the top ten groups of borrowers accounted for 94% of the portfolio). However, almost the entire loan portfolio is secured by guarantees issued by the SO or companies with high credit quality. This factor significantly mitigates credit risks taken by the Bank (the cost of risk was equal to zero in 2017–2019). The quality of the loan portfolio is assessed as high (no non-performing loans). The portfolio of bank loans is made up of receivables from banks with a high level of creditworthiness. The market risk related to derivatives is assessed as low, because the transactions are of market nature and to the benefit of corporate clients who are borrowers of the Bank.

Strong liquidity position. The short-term liquidity shortage indicator remains positive in ACRA’s base case scenario and in the stress scenario there is no liquidity deficit. The long-term liquidity position is also assessed as strong, as the long-term liquidity shortage indicator stands at 85%.

High-concentrated funding profile. The Bank’s liabilities (net of subordinated loans and derivatives) include corporate funds (92%) and interbank loans (6%) granted mainly by the Group’s banks. The concentration of the largest lenders is considered high, as the share of funds from the ten largest lenders was 62% of liabilities (net of subordinated loans and derivatives) as of December 31, 2019. However, ACRA assesses positively the mostly stable nature and predictable dynamics of balances on accounts and deposits of the largest corporate lenders.

Key assumptions

  • Maintained shareholder and operational control over the Bank by the Group;
  • Cost of credit risk within 0–0.5%;
  • N1.2 above 8.5% within the 12 to 18–month horizon;
  • Maintaining the current funding profile.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • Loss of shareholder or operational control by the Group or a substantial decrease in Bank’s significance within the Group.

Rating components

SCA: a-.

Adjustments: none.

Support: on par with the RF.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships Between Rated Entities and Supporting Organizations outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

A credit rating of Credit Agricole CIB AO was first published by ACRA on August 11, 2017. The credit rating and credit rating outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by Credit Agricole CIB AO, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of Credit Agricole CIB AO and the standalone financial statements of Credit Agricole CIB AO drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and Credit Agricole CIB AO participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by Credit Agricole CIB AO in its financial statements have been discovered.

ACRA provided no additional services to Credit Agricole CIB AO. No conflicts of interest were discovered in the course of credit rating assignment.

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