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

ACRA affirms the credit rating assigned to PJSC ROSBANK (hereinafter — ROSBANK, or the Bank) at AAA(RU), outlook Stable, and affirms AAA(RU) for bonds (ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) issued by the Bank.

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

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 (AAA(RU), Stable) and JSC Commercial Bank DeltaCredit (AAA(RU), Stable) - forms ROSBANK Group (hereinafter — the Group).

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 0.14). The 2018 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.

A substantial loss absorption cushion is confirmed by the high level of Tier-1 capital by both the statutory requirements (N1.2 (N20.2) and N1.1 (N20.1) equaled 11.4% and 10.6%, respectively, as at April 1, 2018) and the Basel standards (the Group’s Tier-1 was 16.3% as at end-2017), which allows the Group to sustain a more than 500 bps increase in credit risk, while the relatively low averaged capital generation ratio (ACGR) (25 bps over the past five years) can be mostly put down to 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 raised to adequate in view of a decline of problem and potentially problem loans from a 10.8% share in the portfolio (including NPL90+ at 9.1%; and potentially problem loans at 1.7%, according to the ACRA methodology) to 6.9% of the portfolio (comprising only NPL90+). The concentration on top ten groups of borrowers (13.5% of the portfolio), high-risk industries (construction and real estate industry accounts for 7% of Tier-1 capital) and related parties (33% of Tier-1 capital) is low.

Strong liquidity position is based, in ACRA’s opinion, on the Group’s high capacity to perform its obligations on a 90-days 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 120% in 2017. Also, no imbalances in longer-term periods are observed (the long-term liquidity shortage indicator, LTLSI, is high at 91%).

Well-balanced funding profile. The Group’s funds are typically raised from clients (71% 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 (16% of resource base), around RUB 44 bln (up to 5% of assets) redemptions (including Bank’s bonds totaling RUB 15 bln) may be claimed in the next 12 months.

Key assumptions

  • Retaining the shareholding 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-02 (RU000A0JXUH0); redemption: June 30, 2020; issue volume: RUB 2,816,431,000 - ААА(RU).

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

Rationale. The issue represents 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 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 bonds (ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) issued by PJSC ROSBANK were published by ACRA on April 27, 2017, June 30, 2017, and November 28, 2017, respectively. The credit rating of PJSC ROSBANK and its outlook as well as the credit ratings of bonds (ISIN RU000A0JXUH0, ISIN RU000A0ZYH44) are expected to be revised within one year following the rating action date (April 24, 2018).

The assigned credit ratings are based on the 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. 4212-U dated November 24, 2016. The credit rating is solicited, and PJSC ROSBANK participated in its assignment.

No material discrepancies between the provided data and the 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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