ACRA affirms AAA(RU) of Sberbank, outlook Stable, and affirms AAA(RU) for bonds issued by Sberbank

ACRA affirms the credit rating assigned to Sberbank (hereinafter, Sberbank, or the Bank) at AAA(RU), outlook Stable, and affirms AAA(RU) for BO-19, 001P-03R, and 001P-04R bonds 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 the ACRA methodology. The Bank enjoys very high standalone creditworthiness compared to other Russian credit institutions, which is supported by its exceptional market positions, strong capital position, and adequate risk profile.

Sberbank is the largest Russian bank, accounting for 30% of country’s banking assets. A leader in most of domestic banking business segments, Sberbank also has a full-fledged network of subsidiaries, branches and representative offices spread across the CIS, Central and Eastern Europe, Turkey, the UK, and the US. The main shareholder of the Bank is the Bank of Russia, which holds 50% plus one voting share of its charter capital.

Key rating assessment factors

Very high likelihood of extraordinary support from the state. As a key player on the market of strategical importance for the Russian authorities, Sberbank boasts very high systemic importance (according to the Methodology for Analyzing Relationships Between Rated Entities and the State). This is reflected in potential consequences of its default, which may bring a systemic banking crisis and result in significant problems across the entire economy. Sberbank is a dominant creditor of the population and business (with market shares of 41.4% and 32.4%, respectively), a holder of approximately 46% of retail deposits (an indisputable leader, considerably ahead of the rest of the Russian banks), and a critical infrastructural entity acting as a nation-wide settlement system. Therefore, its default may lead to an acute socioeconomic crisis and recession. In addition, thanks to a unique market position, the Bank is de facto regarded by other credit institutions as a benchmark in terms of direction and pace of interest rate changes.

Very strong business profile. The Bank has a stable franchise and enjoys largest market shares in most of the banking business segments. Sberbank’s key competitive advantages are: a substantial amount (57% of total liabilities as of end-2017, which is slightly less than half of the total amount of funds in the banking system) of relatively cheap retail deposits (around 33% of retail funds on demand and for the term of under 1 month), which allows the Bank to sustain high net interest income (average 3-year NIM stands at 5.4%, exceeding the peer sample level) and be financially stronger than the majority of the Russian banks in the context of declining interest rates in the economy; wide customer base coverage on both the geographical and industry basis, which provides for good operating income diversification (with some skew in favor of interest income from corporate loans); significant investments in the most advanced customer service and information processing technologies, which should stimulate an increase in the proportion of fee and commission income in the medium term. The Bank approved a new development strategy (covering the period to 2020) assuming the average return on equity to reach 20% by virtue of a faster growth of non-interest income (including from non-banking business lines), lower cost of risk, and moderate risk appetite growth in the retail and SME segments, while preserving tight cost control.

ACRA notes improvement in capital adequacy of Sberbank assessing it as strong. By virtue of a stronger averaged capital generation ratio (ACGR), that climbed to 166 bps in the last five years including the period of economic recession, and a moderate quality growth strategy Tier-1 capital adequacy (as calculated under Basel III) has increased from 10.2% to 11.4% in 2017.

Operational efficiency of the Bank (in terms of both CTI and NIM) is assessed as better than that of the peers, which improves capital adequacy assessment according to the ACRA methodology. According to the ACRA stress test, the Bank is able to withstand an additional increase in the cost of risk of over 300 bps without a decline in regulatory core capital adequacy (N1.2) below 6% on the 12 to 18-month horizon. The effect of initial application of IFRS 9 on capital adequacy is assessed by the Bank as limited (within 20 bps).

Adequate risk profile position is marked by a moderate level of non-performing loans (the portion of NPL90+ and restructured debt decreased from 9.3% of the Bank’s total loan portfolio as of end-December 2016 to 8.5% as at December 31, 2017). Risk profile assessment is limited by the significant (and declining) volume of claims classified as specialized lending and identified as bearing high risk under ACRA’s methodology (1.1x of core capital vs 1.36x of core capital in the previous year). The Bank’s risk profile is characterized by a high quality and technologically developed system of risk management both on operating and strategic levels.

Comfortable liquidity position is expressed in sufficient coverage of potential outflows by highly liquid assets (for example, the short-term liquidity ratio (N26) equaled 113.73% in 3Q2017). If it should be necessary, the Bank has an access to the considerable amount of regulatory (REPO and 312-P operations), market, and government instruments. Sberbank’s funding structure is assessed as well-balanced, with moderate concentration both on largest creditors (as of end-December 2017, the share of 20 largest creditor groups equaled to 11.9% of the total client funds with the Bank) as well as on the funding sources on the whole. We do not expect any significant changes in the funding structure within 12 to 18-month horizon.

Key assumptions

  • Retaining the Bank of Russia's shareholder control over the Bank;
  • Cost of credit risk is below 150 bps;
  • Tier-1 capital adequacy above 11% 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:

  • Loss of the Bank of Russia’s shareholder or operating control with a simultaneous decrease of the Bank’s standalone creditworthiness.

Rating components

Standalone creditworthiness assessment (SCA): aaa.

Adjustments: on par with RF.

Issue ratings

Sberbank, BO-19 (4B021901481B), redemption: May 5, 2027,
issue volume: RUB 15 bln — AAA(RU);

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

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

Rationale. The above listed issues represent senior unsecured debt of Sberbank. 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 the Bank, i.e. AAA(RU).

Regulatory disclosure

The credit ratings have been assigned to Sberbank and to bonds (4B021901481B, RU000A0ZYBS1, RU000A0ZYUJ0) 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, Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities, and the Methodology for Analyzing Relationships Between Rated Entities and the State. 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 Sberbank and credit ratings of bonds (4B021901481B, RU000A0ZYBS1, RU000A0ZYUJ0) issued by Sberbank were published by ACRA on March 20, 2017, May 31, 2017, October 14, 2017, and March 5, 2018, 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 rating action date (March 15, 2018).

The assigned credit rating is based on the 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 the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. 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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