ACRA affirms AAA(RU) to Limited Liability Company Rusfinance Bank, outlook Stable, and affirms AAA(RU) to its bonds

ACRA affirms the credit rating assigned to Limited Liability Company Rusfinance Bank (hereinafter, Rusfinance Bank, or the Bank) at AAA(RU), outlook Stable, and affirms AAA(RU) to the bonds (ISIN RU000A0JXLE6) issued by the Bank.

The credit rating of Rusfinance Bank is based on a very high probability of extraordinary support from the shareholder (PJSC ROSBANK, ACRA rating: AAA(RU), outlook Stable; hereinafter, ROSBANK, the Supporting Institution, or the SI). Compared to other credit institutions in Russia, the Bank exhibits moderately high standalone creditworthiness assessment (SCA), supported by adequate business and risk profiles, substantial capital adequacy cushion, and adequate funding and liquidity position.

Rusfinance Bank (formerly Promek Bank), which was acquired by Societe Generale Group in 2005, is now fully owned by it through ROSBANK. Rusfinance Bank ranks among the largest Russian banks (56th by own capital and 54th by assets as of March 1, 2019). The Bank mainly focuses on car loans (it traditionally ranks among the top three in this segment) and point-of-sale consumer lending (POS lending).

Key rating assessment factors

Very high probability of extraordinary support from the shareholder. The sole shareholder of Rusfinance Bank is ROSBANK that boasts the highest possible creditworthiness and, in ACRA’s opinion, is ready to provide the Bank with sufficient long-term and short-term financing, and, if necessary, replenish the Bank’s capital, given:

  • Its 100% equity stake in Rusfinance Bank;
  • Implementation of the car and POS lending development strategy through Rusfinance Bank within the scope of the Russian business segment of the Societe Generale Group, the controlling shareholder of ROSBANK;
  • The strategic importance of the Russian banking market, including the retail lending segment for the Societe Generale Group;
  • Significant operational integration between Rusfinance Bank and the SI;
  • Potentially high reputational risks for the entire Societe Generale Group in case of the Bank’s bankruptcy.

In view of the above facts, the credit rating of Rusfinance Bank corresponds to the credit rating of the SI.

Business profile assessment at “bbb” reflects the Bank’s strong automobile lending franchise in Russia. In 2018, it had a share of some 5.8% on the new car sales market, controlling 12.3% of car lending, which points to its very strong position in this highly competitive market. With a pronounced niche-focused business model, the Bank demonstrates low diversification: the Herfindahl-Hirschman operating income diversification index calculated by ACRA stood at 0.43 as of the end of 2018.

Management quality at Rusfinance Bank is assessed as high in the context of the Russian financial market, which is supported by the Bank’s close integration with the Russian segment of the Societe Generale Group and, hence, by the implementation of the latter’s best corporate governance practices to efficiently manage all business processes. The organizational structure of the Bank is transparent, streamlined and adequate to its business size and assumed risks.

Capital adequacy remains high, which is an important SCA driver. The Bank’s Tier-1 capital adequacy ratio decreased slightly in 2018 down to 17.6% (a comfortable level) compared with 20.6% at the end of 2017, while regulatory capital adequacy N1.2 was at 11.3% in 2018 compared with 13.3% a year earlier. ACRA notes that capital is managed at the level of the ROSBANK Group and the Societe Generale Group, meaning profits of subsidiary banks may be withdrawn and redistributed, if needed.

The Bank traditionally boasts high profitability, despite a decline in net interest margin (NIM) and moderate but rising cost of risk (CoR). Interest margin values will remain at their level, according to the ACRA 12 to 18-month base case scenario for Rusfinance Bank.

Adequate assessment of Rusfinance Bank’s risk profile is mainly based on the quality of its collateral base and high provision coverage of problem loans in the balance sheet. According to the Bank’s IFRS statements, loans overdue for over 90 days accounted for 5.7% of its total loan portfolio as of January 1, 2019, which is lower than 8.8% seen at the end of 2017. A decrease in the share of problem loans is driven by write-offs and the sale of problem loans amid stabilization and gradual improvement of the loan portfolio quality. The above share of problem loans is typical of the key lending segments of the Bank (multi-brand car loans and POS lending), while the loans are secured by highly liquid collateral, such as motor cars.

The provision coverage ratio stood at around 87% as of January 1, 2019, almost completely covering consumer loans overdue for more than 90 days.

The Bank’s risk management quality is assessed as adequate, which is also a supporting factor for overall assessment of the risk profile. The Bank’s risk management is part of common risk management of the ROSBANK Group and is in line with the risk management policy followed by Societe General Group globally.

Adequate liquidity and funding position. The Bank's liquidity position reflects the uniformity of the liquidity management policy within the ROSBANK Group, which includes ROSBANK, Rusfinance Bank and DeltaCredit Bank JSC (ACRA rating: AAA(RU), outlook Stable). According to this policy, the Bank has no significant short-term liquidity in its balance sheet, with liquidity flows and provision timeliness hinging on the needs of the group as a whole and the current market situation. However, the Bank’s long-term liquidity position reflects a significant liquidity surplus. Given this, the Bank’s liquidity is assessed as strong based on the ACRA methodology. The Bank’s funding structure is dominated by its own medium- and long-term bonds and interbank loans, mainly provided by ROSBANK. Rusfinance Bank does not depend on regulator funding.

Key assumptions

  • The Supporting Institution retaining its shareholding and operational control over the Bank;
  • Cost of risk at around 3%-3.5%;
  • Tier-1 IFRS capital adequacy above 12% 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:

  • Forfeiture of shareholding and operational control by the Supporting Institution and the Societe Generale Group, as well as a material decline in the Bank’s importance within the group.

Rating components

SCA: a.

Adjustments: on par with supporting institution creditworthiness assessment (SICA).

Issue ratings

Limited Liability Company Rusfinance Bank, BО-001P-02 (RU000A0JXLE6); maturity date: March 23, 2020; issue volume: RUB 4 bln — AAA(RU).

Rationale. The issue represents senior unsecured debt of Limited Liability Company Rusfinance Bank. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it 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 Limited Liability Company Rusfinance Bank, i.e. AAA(RU).

Regulatory disclosure

The credit ratings of Limited Liability Company Rusfinance Bank and bonds (ISIN RU000A0JXLE6) issued by Limited Liability Company Rusfinance Bank have 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 Analytical Credit Rating Agency within the Scope of Its Rating Activities. 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 Limited Liability Company Rusfinance Bank and credit rating of the bonds (ISIN RU000A0JXLE6) issued by Limited Liability Company Rusfinance Bank were published by ACRA on April 27, 2017 and May 4, 2017, respectively. The credit rating of Limited Liability Company Rusfinance Bank and its outlook as well as the credit rating of the bonds (ISIN RU000A0JXLE6) are expected to be revised within one year following the publication date of this press release.

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

No material discrepancies between the provided data and data officially disclosed by Limited Liability Company Rusfinance Bank in its financial statements have been discovered.

Disclosure of deviations from the methodology. ACRA makes an upward adjustment of the basic capital adequacy assessment based on the dividend policy specifics within ROSBANK Group, which is aimed at managing capital of the group as a whole.

ACRA provided no additional services to Limited Liability Company Rusfinance Bank. No conflicts of interest were discovered in the course of credit rating assignment.

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