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ACRA assigns AAA(RU) to “BNP PARIBAS Bank” JSC, outlook Stable

The credit rating assigned to “BNP PARIBAS Bank” JSC (hereinafter, BNP Paribas, or the Bank) is driven by very high probability of extraordinary support from its parent company with high creditworthiness. BNP Paribas has a moderately high standalone creditworthiness (SCA) stemming from adequate capital adequacy, strong risk profile assessment as well as adequate liquidity and funding position, and a medium business profile.

BNP Paribas is a credit institution ranking 84th by assets and 66th by own capital amount among Russian banks. BNP Paribas S.A. (hereinafter, BNP Paribas S.A., the Parent Bank, Supporting Institution, or SI) is the ultimate beneficiary of 100% of the Bank’s shares. BNP Paribas S.A. is the key entity in the BNP Paribas Group (hereinafter, the Group), one of the largest financial groups globally.

Key rating assessment factors

Very high likelihood of extraordinary support from the shareholder. In ACRA’s opinion, the Parent Bank (independently or through other entities of the Group) can provide BNP Paribas with sufficient long-term and short-term financing and capital injections, if needed. ACRA determines the resulting assessment of the country risk of jurisdiction of the foreign supporting institution (Eurozone, the USA, etc.), as compared to the country risk of Russia, and creditworthiness assessment of the SI as strong.

The degree of relationship between the Bank and its shareholder is assessed as strong, in view of the following factors:

  • Explicit operational integration between BNP Paribas and the SI (the Parent Bank defines corporate procedures and risk management standards that the Bank applies with due consideration of the Russian regulations);
  • BNP Paribas S.A. considers the Bank as a strategically important asset emphasizing the vital role of the Bank’s clearing operations for the ruble settlements;
  • BNP Paribas provides services to a number of other Group companies as well as to high-profile clients of the Group;
  • Representatives of the Parent Bank are members of the Bank’s Supervisory Board.

In view of the above, the credit rating of the Bank is determined on par with the Russian Federation.

Satisfactory assessment of the business profile. Business profile assessment of the Bank is determined by its strong franchise in servicing large Russian and multinational companies operating in the Russian Federation. Operating income diversification is low (mostly generated from interest income from funds deposited with other banks including the Bank of Russia). The strategy of BNP Paribas involves cooperation with Russian and international companies and includes lending, derivative financial instruments transactions, cash management services, trade and export finance, etc. The corporate governance system is compliant with the requirements of the Parent Bank that is the sole shareholder of BNP Paribas.

Substantial loss absorption buffer is supported by the Bank’s high regulatory capital adequacy level (as at December 1, 2017, N1.2 stood at 27.5% and N1.0 equaled 48.33%). The final assessment of the Bank’s capital position is affected by a relatively weak performance (the average cost-to-income ratio (CTI) reached 60% in 2014-2016, and the net interest margin (NIM) was below 1.5%). At the same time, BNP Paribas has been continuously profitable: the averaged capital generation ratio totaled 23 bps for the last five years. The Bank regularly distributes generated profits in form of dividends, while the current capital needs of BNP Paribas, stress-testing results and other factors are taken into account when determining whether dividend payouts are appropriate.

Strong risk profile assessment is based on high asset quality beyond the loan portfolio, and on adequate risk management quality. The loan portfolio equaled around 8% of total assets (with less than ten borrowers) as at December 1, 2017 according to RAS reporting. ACRA notes that the Bank’s risk-weighted assets (RWA) reduced substantially following a decline in the number of borrowers amid deterioration of the economic environment in Russia. In view of a small size of the loan portfolio, availability of guarantees from the Parent Bank with respect to a number of claims, and 100% provisioning for NPL90+, ACRA believes that the loan portfolio quality has no effect on the risk profile of BNP Paribas. Claims to the Parent Bank are the main assets of the Bank. The quality of counterparties in off-balance sheet liabilities is also assessed as high. The amount of market and operational risks taken have no effect on the final risk profile assessment. The Bank has an appropriate risk management system in place: the principles of its activities are guided by the requirements of both the Bank of Russia and BNP Paribas S.A.

Strong liquidity position is primarily driven by large amount of liquid and high-liquid assets as well as by a limited number of liabilities to be repaid in the next three months. As a result, the figures of the short-term liquidity shortage indicator (STLSI) demonstrate that the Bank has a liquidity surplus of RUB 13 bln in a base case scenario, and the surplus exceeds 11% of liabilities in a stress scenario. The long-term liquidity shortage indicator (LTLSI) value above 170% corresponds to a strong assessment. ACRA notes that BNP Paribas has a wide range of options for raising additional liquidity including funds from the Bank of Russia and BNP Paribas S.A.

Concentrated funding profile. Funds of legal entities are the core of the Bank’s resource base: they totaled around 50% of liabilities excluding the subordinated debt as at June 30, 2017. At the same time, ACRA notes the high share (more than 30% of total liabilities) of funds of the largest client. The above funding concentration results in a lower assessment of the funding factor by the Agency.

Key assumptions

  • Retaining the current conservative development model;
  • Moderate growth of the loan portfolio;
  • Retaining the shareholding and operational control by BNP Paribas S.A.;
  • Tier-1 capital adequacy ratio (N1.2) staying above 11% in the next 12 to 18 months.

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:

  • A declining interest of BNP Paribas Group in developing business in the Russian Federation;
  • A substantial deterioration of the financial standing of the SI;
  • A declining quality of the loan portfolio following its growth.

Rating components

Standalone creditworthiness assessment (SCA): a+.

Adjustments: no.

Support: on par with RF.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has 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 Relationships Between Rated Entities and Supporting Organizations outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating has been assigned to “BNP PARIBAS Bank” Joint stock company for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (January 19, 2018).

Disclosure of deviations from approved methodologies. The loan portfolio quality was not assessed by the risk profile factor as the loan portfolio’s share in the total assets was below 10% as at December 1, 2017 according to the RAS reporting, and the amount of actually accepted risk in the portfolio is not critical for the Bank’s financial stability.

The credit rating was assigned based on the data provided by “BNP PARIBAS Bank” Joint stock company, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of “BNP PARIBAS Bank” Joint stock company and BNP Paribas S.A., and the financial statements of “BNP PARIBAS Bank” Joint stock company drawn up in compliance with Bank of Russia Ordinance No. 4212-U of November 24, 2016. The credit rating is solicited, and “BNP PARIBAS Bank” Joint stock company participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by “BNP PARIBAS Bank” Joint stock company in its financial statements have been discovered.

ACRA provided no additional services to “BNP PARIBAS Bank” Joint stock company. No conflicts of interest were discovered in the course of credit rating assignment.

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