ACRA affirms ААА(RU) to Natixis Bank JSC, outlook Stable

The credit rating assigned to Natixis Bank JSC (hereinafter, the Bank) is based on the very high likelihood of extraordinary support from the parent entity with a high creditworthiness. The Bank’s standalone creditworthiness assessment (SCA) is moderate, in view of its adequate risk profile assessment, adequate liquidity and funding position, and satisfactory business profile. The capital adequacy assessment has been changed from adequate to satisfactory amid continuing unprofitable operations.

The Bank is a credit institution that ranked 106th in terms of assets and 108th in terms of capital among Russian banks as of June 1, 2021. The ultimate beneficiary owning 100% shares of the Bank is Natixis (hereinafter, Natixis Group, the Supporting Entity, the SE, or the Group), a part of Groupe BPCE that provides a wide range of financial services.

Key rating assessment factors

Very high likelihood of extraordinary support from the shareholder. In ACRA’s view, the SE will provide the Bank with short-term and long-term funding and capital injections in light of the following:

  • The creditworthiness of the Group is high compared to the standalone creditworthiness of the Bank. The scope of the Bank’s business is not a factor that could limit the effectiveness of potential support;
  • The Group exercises complete shareholder and operational control over the Bank (the parent company determines the Bank’s corporate risk management procedures and standards, taking into account Russian law);
  • The Bank and the Group operate under the same brand and therefore a possible default of the Bank may be associated with the Group.

The Agency takes into account the fact that the SE operates in a jurisdiction that differs from the jurisdiction of presence of the Bank, which makes the possibility of providing support dependent on the freedom of movement of capital between the countries. In addition, the termination of the Bank’s activities or its deconsolidation will not lead to the emergence of critical risks for the implementation of the group-wide strategy.

Due to the above, as well as taking into account possible reputational risks for Natixis and Groupe BPCE in the event of the Bank’s default, ACRA sets the Bank’s credit rating at AAA(RU).

The business profile assessment remains satisfactory, considering the Bank’s low market positions and weak diversification of operating income. The business strategy of the Bank has been stable, being a part of the general strategy of Natixis Group in the Russian Federation. Natixis Group uses the Bank to expand its customer base in the Russian Federation and to build relationships with counterparties, assess risks and markets, etc.

The Bank’s capital adequacy assessment has been changed from adequate to satisfactory to reflect the continuing losses generated by its operations. According to ACRA’s calculations, the averaged capital generation ratio (AGCR) for 2016–2020 was -98 bps. In these conditions, the N1.2 ratio stood at 10.22% as of June 1, 2021. A significant factor behind the Bank’s weak operating results is its low operating efficiency and limited profitability.

Adequate risk-profile. As of the end of 2020, the majority of the Bank’s portfolio (69.1% of total assets) comprised of loans issued. Natixis Group continues to provide guarantees for certain loans; ACRA considers that the creditworthiness of the Bank’s borrowers is acceptable. The Bank holds excess liquidity in highly reliable credit institutions.

The risk management function has been effective in managing the risks facing the Bank over the years, and it also contributes to the assessment of such risks by the Parent Bank and the business processes within the entire Natixis Group. The risk assessment and management system is built using the expertise of Natixis Group and is considered by ACRA as adequate.

Liquidity and funding is assessed as adequate and has been supported by a high volume of liquid and high-liquid assets. The calculations of the STLSI suggest that, in the base case scenario, the Bank has excess liquidity of about RUB 4 bln, while in the stress scenario, the excess exceeds 13% of liabilities. The LTLSI is comfortably above 100%. The main funding source for the Bank by far is the Supporting Entity. Such concentration results in a relatively low assessment of the funding factor. On the other hand, the concentration of funding sources in terms of their types, excluding the subordinated debt, is acceptable.

Key assumptions

  • The current emphasis on conservative development model and the high quality of loan portfolio is maintained;
  • Retained shareholding and operating control by Natixis;
  • Tier 1 capital to Risk-weighted assets ratio to remain above 10% within the 12 to 18-month horizon.

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:

  • Declining importance of the Russian market to Natixis Group;
  • Substantial deterioration of the creditworthiness of the Supporting Entity.

Rating components

SCA: bbb+.

Adjustments: none.

Support: ACRA is of the opinion that in case of need, the supporting entity would be able to provide the Bank with extraordinary support in the form of capital and/or liquidity. Taking into account the support factors, the Bank’s rating is set seven notches above the SCA.

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 Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating of Natixis Bank JSC was published by ACRA for the first time on August 18, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

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

In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to Natixis Bank JSC. No conflicts of interest were discovered in the course of credit rating assignment.

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