Training on Forecasting September 17–18

ACRA assigns the status of “Rating under revision: negative” to credit rating of «Bank Otkritie Financial Corporation» (PJSC)

Assigning the status of “Rating under revision: negative” to the credit rating of «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) (hereinafter, the Bank) reflects ACRA’s opinion of a potential significant deterioration of the Bank’s liquidity position in connection with a number of factors:

  • Substantial outflow of client funds in June and July 2017;
  • Increasing dependence of the Bank on refinancing transactions with the Bank of Russia.

Key rating assessment factors

The credit rating of the Bank at BBB-(RU) is determined by its moderate business profile, and adequate capital adequacy. Significant pressure on the Bank’s creditworthiness is still exerted by low quality of its assets and by probable negative effect of the parent holding company on the Bank’s liquidity and capital adequacy. The Bank is marked by a moderate systemic importance for the Russian banking system according to ACRA methodology.

ACRA notes that the Bank has faced a substantial outflow of client funds (RUB 433 bln, or 26%) and interbank funding (RUB 303 bln, or 48%) in June and July 2017, which also included the scheduled redemptions and cumulatively resulted in a 17% decrease in its liabilities. Among other measures the Bank had to turn to raising funds from the Bank of Russia under repo transactions at a fixed rate against pledge of securities portfolio: as at August 1, 2017, funding raised from the regulator amounted to RUB 338 bln, or 17% of the total liabilities. As a result, current liquidity ratio (calculated by ACRA as a ratio of high-liquid and unencumbered assets to interbank liabilities and time deposits (of up to 30 days) of legal entities, current accounts of legal entities and individuals and term deposits of individuals) declined from 28% as at June 1, 2017 to 21% as at August 1, 2017, which is significantly below the figures of comparable private banks. The outflow of resources experienced is in line with ACRA’s stress scenario assumptions used in assessing liquidity and determining the Bank’s credit rating.

ACRA believes that the Bank had a liquidity cushion as at early August 2017; however, one cannot rule out that in a scenario where outflow of funds continues in August and September at the current pace, the Bank’s financial stability will hinge upon support from the regulator as the ultimate creditor.

The Agency continuously receives information regarding the Bank’s current liquidity position and plans to consider resolving the status assigned to the credit rating within the next 90 days. The Agency continues monitoring impact of additional support measures by the Bank of Russia in the context of the Bank’s systemic importance.

Key assumptions

  • Use of refinancing instruments of the Bank of Russia to manage current liquidity;
  • Maintaining current capital adequacy level.

Potential outlook or rating change factors

A negative rating action may be prompted by:

  • Further significant deterioration of liquidity ;

Status removal and credit rating confirmation may be prompted by:

  • Normalization of resource base volatility and recovery of liquidity cushion;
  • Additional support measures by the Bank of Russia.

Rating components

Standalone creditworthiness assessment (SCA): bbb-.

Adjustments: systemic importance: +2 notches; Group influence assessment: -2 notches.

Regulatory disclosure

The credit rating and its status have been assigned under the national scale for the Russian Federation and is 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 Member Company Relationships Within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating of «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) was published on July 3, 2017 for the first time. The credit rating is expected to be revised within 90 days following the rating action date (August 18, 2017).

The assigned credit rating and its status are based on the data provided by «Bank Otkritie Financial Corporation» (Public Joint-Stock Company), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) and statements of «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) in its financial statements have been discovered.

ACRA provided an additional service to «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) in the form of informational support (a practical seminar). No conflicts of interest were discovered in the course of credit rating assignment.

Disclosure of deviations from approved methodologies. (1) The Bank’s SCA was adjusted by two notches due to the ACRA’s assessment of the risk of liquidity outflow that may be caused by the possibility of the Bank rendering support to the other members of the Otkritie Holding group, as significant and exceeding the highest adjustment allowed by the ACRA methodology. (2) High market risk is mitigated by a significant share of high-quality securities in the securities portfolio; hence, a one-notch positive adjustment pertaining to market risk was applied.

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