Training on sovereign risk credit analysis, October 24

ACRA affirms AAA(RU) to PJSC ROSBANK, outlook Stable, and affirms AAA(RU) to its bonds

ACRA affirms the credit rating assigned to PJSC ROSBANK (hereinafter, ROSBANK, or the Bank) at AAA(RU), outlook Stable, and upgrades the Bank’s standalone creditworthiness assessment (SCA) to аа+ due to the improvement of ratios as far as the capital adequacy factor is concerned. ACRA also affirms the credit ratings of the bonds issued by the Bank (ISIN RU000A100220, ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) at AAA(RU).

The credit rating of ROSBANK is based on a very high probability of the Bank receiving extraordinary support from its parent bank that boasts a high level of creditworthiness. ROSBANK has a high standalone creditworthiness assessment (SCA) in view of comfortable capital adequacy, adequate risk profile and adequate liquidity and funding position.

ROSBANK is a systemically important universal bank holding leading positions in the Russian banking sector in terms of assets and capital (being among the top 10 banking groups in terms of capital) and operating in all federal districts of the Russian Federation. The Bank is a 99.95%-owned subsidiary of Societe Generale S.A. domiciled in France (a parent bank of the international financial group Societe Generale, hereinafter — SG Group), and together with its 100% subsidiaries — Limited Liability Company Rusfinance Bank (ACRA rating: AAA(RU), outlook Stable) and JSC Commercial Bank DeltaCredit (ACRA rating: AAA(RU), outlook Stable) — forms ROSBANK Group (hereinafter, the Group). The merger between ROSBANK and JSC Commercial Bank DeltaCredit is currently ongoing in order to raise synergies within the ROSBANK Group, including to boost cross-selling to customers of the Group’s banks and optimize business processes; the merger is expected to be completed in the second quarter of 2019.

Key rating assessment factors

Very high probability of extraordinary support from the shareholder. If necessary, SG Group represented by its parent entity Societe Generale S.A. (hereinafter, the Supporting Institution, or the SI) is willing to provide ROSBANK with both short-term and long-term financing, as well as to infuse capital, for the reasons stated below:

  • The Russian market is strategically important for SG Group;
  • Pronounced operational integration (e.g. the Bank being a part of the SG Group’s corporate and investment platform);
  •  The Bank’s potential default can entail substantial operational and financial risks for the SG Group.

The final assessment of a country risk of the foreign supporting institution presence jurisdiction (France) against the country risk of Russia and the supporting institution’s creditworthiness assessment are defined by the Agency as strong, and the Bank’s connection with the shareholder is assessed as a very strong. In view of the above, the credit rating of the Bank is determined on par with the Russian Federation.

Strong business profile. Given the Group’s universal nature, its diversification of operating income before provisions is assessed as high (the Herfindahl-Hirschman index is 0.13). The 2019 strategy is generally considered to be in line with the current macroeconomic trends, and is assessed by ACRA as adequate and feasible. The management quality at ROSBANK is assessed as the highest given many years of the top management’s successful work experience and the fact that Societe Generale S.A. exercises full control over the Bank’ operating activities and over the Group operating in the Russian Federation as a whole.

Сapital adequacy assessment has been upgraded to strong due to the growth of the Tier-1 capital adequacy ratio up to 18.1% in 2018 given the maintenance of regulatory capital adequacy ratios at a high level (N1.2 and N20.2 totaled 9.6% and 11.3% respectively as of January 1, 2019), which allows the Bank to sustain a more than 500 bps increase in credit risk. The low averaged capital generation ratio (ACGR) is also showing a tendency towards growth, although its value (around 50 bps over the past five years) is still affected by the Group’s loss-making activities in 2015. The operating efficiency is acceptable.

Adequate risk profile assessment is based on the Group's risk management system quality, which is characterized by transparency and independency in intragroup decision-making as well as by regular improvement of its stress methods, performance of stress tests, and assessment of the current operating environment. The Group’s loan portfolio quality (63% of assets) is characterized by an acceptable level of problem and potentially problem loans — 6.3% (including NPL90+ at 5.1%). Concentration on the top ten groups of borrowers (nearly 15% of the portfolio) and high-risk industries (construction and real estate industry accounts for 5% of Tier-1 capital) is sufficiently low.

Strong liquidity position is based, in ACRA’s opinion, on the Group’s high capacity to perform its obligations on a 90-day horizon in view of a short-term liquidity surplus in both base case and stress scenarios, which is confirmed by high short-term liquidity indicator (STLI) that averaged around 110% in 2018. Also, no imbalances in longer-term periods are observed (the long-term liquidity shortage indicator, LTLSI, exceeds 85%).

Well-balanced funding profile. The Group’s funds are typically raised from clients (74% of its liabilities) mostly on a term basis. At the same time, there is no significant concentration on the largest creditors (top 10 creditors account for 20% of the resource base). The Group is also actively involved in debt placement (10% of resource base). Redemption of a significant volume of liabilities is not expected in the next 12 months.

Key assumptions

  • Retaining the shareholder and operational control by SG Group;
  • Cost of credit risk is at or below 100 bps;
  • Maintaining Tier-1 capital adequacy (N1.2) above 9% 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:

  • Shareholders being less willing to support the Bank;
  • A substantial deterioration in the SI’s creditworthiness.

Rating components

SCA: аа+.

Adjustments: none.

Support: on par with the Russian Federation.

Issue ratings

PJSC ROSBANK, BО-002R-04 (RU000A100220); maturity date: January 31, 2022; issue volume: RUB 10,000,000,000 — ААА(RU);

PJSC ROSBANK, BО-002R-02 (RU000A0JXUH0); maturity date: June 30, 2020; issue volume: RUB 2,816,431,000 — ААА(RU);

PJSC ROSBANK, BО-002R-03 (RU000A0ZYH44); maturity date: December 2, 2022; issue volume RUB 3,000,000,000 — ААА(RU).

Rationale. The issues represent senior unsecured debt of ROSBANK. 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 issues is equivalent to that of PJSC ROSBANK, i.e. AAA(RU).

Regulatory disclosure

The credit ratings of PJSC ROSBANK and bonds (ISIN RU000A100220, ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) issued by PJSC ROSBANK have been assigned under the national scale for the Russian Federation and are 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 PJSC ROSBANK and credit ratings of the bonds (ISIN RU000A100220, ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) issued by PJSC ROSBANK were published by ACRA on April 27, 2017, January 28, 2019, June 30, 2017, and November 28, 2017, respectively. The credit rating of PJSC ROSBANK and its outlook as well as the credit ratings of the bonds (ISIN RU000A100220, ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) 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 PJSC ROSBANK, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of ROSBANK Group and statements of PJSC ROSBANK composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit ratings are solicited, and PJSC ROSBANK participated in their assignment.

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

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

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