ACRA affirms AAA(RU) to Sberbank, outlook Stable, and affirms AAA(RU) to bonds issued by Sberbank

ACRA affirms the credit rating assigned to Sberbank (hereinafter, Sberbank, or the Bank) at AAA(RU), outlook Stable, and affirms AAA(RU) to bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2) issued by the Bank.

The credit rating of Sberbank is based on its very high systemic importance for the Russian economy and a high degree of state influence, as defined by ACRA's methodology. The Bank's standalone creditworthiness is very high as compared to other Russian credit institutions, which is supported by its exceptional market positions, strong capital position, and adequate risk profile.

Sberbank is the largest Russian bank that holds over 30% of the total assets in the banking system. A leader in most domestic banking business segments in Russia, Sberbank is also represented internationally, having foreign subsidiaries, branches and representative offices spread across the CIS, Central and Eastern Europe, Turkey, and other countries. By the end of 1H2019, Sberbank is expected to close the sale of its Turkish subsidiary Denizbank A.S.

The key shareholder of the Sberbank is the Central Bank of the Russian Federation that holds 50% + one voting share in the authorized capital of the Bank.

Key rating assessment factors

Very high likelihood of extraordinary support from the government. As a key player in the market of strategical importance for the Russian authorities, Sberbank boasts very high systemic importance (according to the Methodology for Analyzing Relationships Between Rated Entities and the State). This is reflected in the consequences of its potential default, which may bring a systemic banking crisis and result in significant problems across the entire economy. Sberbank is a dominant lender for retail and corporate clients (with respective market shares of 41.3% and 32.6%), a holder of approximately 44.7% of retail deposits (an indisputable leader, considerably ahead of the rest of the Russian banks), and a critical infrastructural entity acting as a nation-wide settlement system. Therefore, its default may lead to an acute socioeconomic crisis and recession. In addition, thanks to a unique market position, the Bank is a de facto benchmark institution in terms of interest rates.

Very strong business profile. The Bank has a stable franchise and enjoys the largest market shares in most banking business segments. Sberbank’s key competitive advantages include: a substantial amount (53.8% of the total liabilities of the Bank (excluding liabilities of the disposal groups) as of end-2018, which is slightly less than a half of the total amount of funds in the Russian banking system) of relatively low cost retail deposits (around 25% of demand deposits and current accounts), which allows the Bank to earn high net interest income (the average NIM exceeds that of peer banks) and be financially stronger than the majority of the Russian banks amid declining interest rates in the economy; wide customer base coverage in terms of geography and industry, which provides for good operating income diversification (with some skew in favor of interest income from corporate loans); significant investments in the most advanced customer service and data technologies, which should boost fee and commission income in the medium term. The Bank's strategy covering the period until 2020 assumes that the average return on equity will to reach 20% through higher interest and non-interest incomes (including those from non-banking business lines), lower cost of risk, moderate growth of risk appetite, and strict control over the costs.

Strong capital adequacy assessment. Over the last five years, the Bank has demonstrated strong capital generation metrics: the average capital generation ratio (ACGR) amounted to 142 bps. The Bank's conservative capital and risk management policies have boosted the Tier 1 CAR, as calculated under Basel III, up to 11.8% in 2018.

The Bank's operational efficiency indicators have also increased and currently exceed those of peer banks, which is positive for the rating assessment: according to ACRA's calculations for the last three years, CTI and NIM amounted to 36.8% and 5.7%, respectively.

According to stress tests carried out by ACRA for the 12 to 18-month horizon, the Bank is able to withstand an additional increase in the cost of risk of over 300 bps without a decline in the regulatory capital adequacy ratio (N1.2) below 6%.

Adequate risk profile assessment is based on the moderate, according to ACRA estimations,, level of problem loans (the share of NPL90+ and restructured loans in the Bank’s total loan portfolio has decreased from 8.5% as of late 2017 to 8.0% as of late 2018). The share of loans categorized as impaired under IFRS 9 amounted to 7.7% of the total loan portfolio.

The Agency notes that as of late 2018, the share of loans granted to companies operating in high-risk industries, as defined in ACRA's methodology, was less than 100% of Tier 1 capital.

ACRA also notes that the Bank’s risk management system is mature and sophisticated on both the operating and strategic levels.

Comfortable liquidity position is underpinned by the sufficient coverage of potential outflows by highly liquid assets (for example, the short-term liquidity ratio (N26) equaled 134.91% as of January 1, 2019). In case of need, the Bank has an access to a wide range of regulatory (repurchase and secured pre-finance transactions), market, and government funding instruments. Sberbank’s funding profile is assessed as well-balanced, with a moderate concentration on both the largest lenders (as of end-2018, the share of top 20 lender groups equaled to 15.8% of the total amount of client funds) and funding sources. We do not expect any significant changes in the funding structure to occur within 12 to 18-month horizon.

Key assumptions

  • The Bank of Russia will retain its shareholding control over Sberbank;
  • The cost of credit risk will be below 150 bps;
  • Tier-1 CAR will be above 12% within the 12 to 18-month horizon;
  • The Bank will maintain high operating efficiency ratios.

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 by the Bank of Russia of its shareholding or operating control over the Bank amid lower standalone creditworthiness of the Bank.

Rating components

Standalone creditworthiness assessment (SCA): aaa.

Adjustments: on par with RF.

Issue ratings

Sberbank, 001Р-03R (RU000A0ZYBS1), redemption: December 8, 2020, issue volume: RUB 40 bln — AAA(RU).

Sberbank, 001Р-04R (RU000A0ZYUJ0), redemption: August 27, 2021, issue volume: RUB 50 bln — AAA(RU).

Sberbank, BО-19 (RU000A0JXRW5), redemption: May 30, 2027, issue volume: RUB 15 bln — AAA(RU).

Sberbank, 001Р-06R (RU000A0ZZ117), redemption: May 19, 2023, issue volume: RUB 40 bln — AAA(RU).

Sberbank, 001Р-12R (RU000A0ZZBN9), redemption: February 2, 2022, issue volume: RUB 50 bln — AAA(RU).

Sberbank, 001Р-16R (RU000A0ZZE20), redemption: January 18, 2023, issue volume: RUB 40 bln — AAA(RU).

Sberbank, 001Р-52R (RU000A0ZZWZ9), redemption: February 7, 2022, issue volume: RUB 12 bln — AAA(RU).

Sberbank, 001Р-50R (RU000A0ZZXS2), redemption: March 7, 2024, issue volume: RUB 15 bln — AAA(RU).

Rationale. The above listed issues represent senior unsecured debt of Sberbank. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Bank. According to the ACRA methodology, the credit rating of the issue is equivalent to that of the Bank, i.e. AAA(RU).

Regulatory disclosure

The credit ratings were assigned to Sberbank and bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2) issued by Sberbank 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, Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities, and the Methodology for Analyzing Relationships Between Rated Entities and the State. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale of the Russian Federation was also used in the process of credit rating assignment.

For the first time, the credit rating of Sberbank and credit ratings of the bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2) issued by Sberbank were published by ACRA on March 20, 2017, October 13, 2017, March 5, 2018, May 31, 2017, May 29, 2018, July 5, 2018, December 14, 2018, December 14, 2018, and December 14, 2018, respectively. The credit rating of Sberbank and its outlook as well as the credit ratings of the above bonds are expected to be revised within one year following the publication date of this press release.

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

No material discrepancies between the provided data and the data officially disclosed by Sberbank in its financial statements have been discovered.

ACRA provided additional services to Sberbank. No conflicts of interest were discovered in the course of credit rating assignment.

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