ACRA affirms AAA(RU) to Sberbank, outlook Stable, and AAA(RU) to bond issues

ACRA has affirmed the credit rating assigned to Sberbank (hereinafter, Sberbank, or the Bank) at AAA(RU), outlook Stable, and AAA(RU) to bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2, RU000A100758, RU000A100KW7, RU000A100KX5, RU000A100K80, RU000A100VB8, RU000A1012R9, RU000A101C89) 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 and liquidity and funding profiles.

Sberbank is Russia’s largest bank and 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, and other countries.

Currently, Sberbank’s key shareholder is the Central Bank of the Russian Federation, holding 50% plus one voting share in the authorized capital of the Bank. In 2020, the Russian government will acquire this package using money from the National Wealth Fund.

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 ACRA’s Methodology for Analyzing Relationships Between Rated Entities and the State). This is reflected in the consequences of its potential default, which could lead to 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 41.2% and 30.4%, according to ACRA’s data), holds approximately 44.4% of retail deposits, and is a critical infrastructural entity acting as a nationwide settlement system. Therefore, its default could 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 (55.8% of the Bank’s total liabilities as of the end of 2019) of relatively low cost retail deposits (around 27% of demand deposits and current accounts), which allows the Bank to earn high net interest income (the average NIM exceeds that of peer banks). In addition, the Bank has wide customer base coverage in terms of geography and industry, which provides for diverse operating income (some skew in favor of interest income from corporate loans). The Bank also holds significant investments in the most advanced customer service and data technologies.

Strong capital adequacy assessment. In recent years, the Bank has recorded strong profits, which in 2019 increased by almost 10% and take into account the loss incurred (RUB 69.8 bln) by the sale of Denizbank A.S. The average capital generation ratio amounted to 173 bps. The Bank’s conservative capital and risk management policies boosted the Tier 1 CAR, as calculated under Basel III, up to 13.4% in 2019. The Bank’s operational efficiency indicators exceed those of peer banks, which is positive for the rating assessment. According to ACRA’s, CTI decreased slightly, amounting to around 36% for the last three years, despite a small increase in 2019 due to expenses related largely to the cost of developing the IT platform. NIM decreased in 2019 (5.6% average for three years, according to ACRA’s calculations), but it is still higher than the market average for the banking system due to access to cheaper funding, among other reasons.

ACRA’s stress test shows that the Bank is able to withstand an additional increase in the cost of risk of over 400 bps without a decline in N1.2 below 6% within the 12 to 18-month horizon.

The adequate risk profile assessment is based on a moderate level of problem loans. The share of loans categorized as impaired under IFRS 9 amounted to 7.5% of the total loan portfolio at the end of December 2019.

The share of loans granted to companies operating in high-risk industries, as defined in ACRA’s methodology, remained virtually unchanged and was less than 100% of Tier 1 capital at the end of 2019. The share of foreign currency loans in the portfolio is below 19% and has been steadily decreasing in recent years, which reduces the Bank’s exposure to external shocks.

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

The Bank’s comfortable liquidity and funding position is underpinned by the sufficient coverage of potential outflows with highly liquid assets (the short-term liquidity ratio (N26) equaled 133% as of January 1, 2020). If necessary, the Bank has 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 (at the end of 2019, the share of the top 20 lender groups equaled to 14.9% of the total amount of client funds) and funding sources. ACRA does not expect any significant changes in the funding structure within the 12 to 18-month horizon.

Key assumptions

  • Maintained shareholder control over Sberbank by the government;
  • Cost of credit risk below 150 bps;
  • Tier-1 CAR above 12% within the 12 to 18-month horizon;
  • Maintaining 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 of shareholder or operational control over the Bank on the part of the government and decreased standalone creditworthiness of the Bank.

Rating components

SCA: aaa.

Adjustments: on par with the RF.

Issue ratings

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

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

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

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

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

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

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

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

Sberbank, 001Р-78R (RU000A100758), maturity date: March 25, 2021, issue volume: RUB  40 bln — AAA(RU)

Sberbank, 001Р-SBER10 (RU000A100KW7), maturity date: July 12, 2021, issue volume: RUB  5 bln — AAA(RU)

Sberbank, 001Р-SBER11 (RU000A100KX5), maturity date: July 12, 2021, issue volume: RUB  10 bln — AAA(RU)

Sberbank, 001Р-SBER12 (RU000A100K80), maturity date: July 11, 2022, issue volume: RUB  40 bln — AAA(RU)

Sberbank, 001Р-SBER13 (RU000A100VB8), maturity date: September 24, 2021, issue volume: RUB  40 bln — AAA(RU)

Sberbank, 001Р-SBER14 (RU000A1012R9), maturity date: November 19, 2021, issue volume: RUB  40 bln — AAA(RU)

Sberbank, 001Р-SBER15 (RU000A101C89), maturity date: January 22, 2024, issue volume: RUB  50 bln — AAA(RU)

Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments 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 ACRA’s methodology, the credit ratings of the bonds correspond to the credit rating of the Bank, AAA(RU).

Regulatory disclosure

The credit ratings were assigned to Sberbank and bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2, RU000A100758, RU000A100KW7, RU000A100KX5, RU000A100K80, RU000A100VB8, RU000A1012R9, RU000A101C89) 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, the Methodology for Analyzing Relationships Between Rated Entities and the State, and the Key Concepts Used by the 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 for the Russian Federation was also used in the process of the credit rating assignment.

The credit rating of Sberbank and the bonds (RU000A0ZYBS1, RU000A0ZYUJ0, RU000A0JXRW5, RU000A0ZZ117, RU000A0ZZBN9, RU000A0ZZE20, RU000A0ZZWZ9, RU000A0ZZXS2, RU000A100758, RU000A100KW7, RU000A100KX5, RU000A100K80, RU000A100VB8, RU000A1012R9, RU000A101C89) issued by Sberbank were published by ACRA for the first time 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, December 14, 2018, March 29, 2019, July 16, 2019, July 16, 2019, July 16, 2019, September 30, 2019, November 22, 2019, and January 24, 2020, 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 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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