ACRA affirms AAA(RU) to AO UniCredit Bank, outlook Stable

The credit rating of AO UniCredit Bank (hereinafter – UniCredit Bank, the Bank) is determined by a very high likelihood of receiving extraordinary support from the parent bank marked by high creditworthiness. The Bank's standalone creditworthiness assessment (SCA) is also high due to a combination of its strong market positions, sound loss absorption buffer and adequate risk profile.

UniCredit Bank is a systemically important bank, which is 100%-owned by UniCredit S.p.A., Italy. The Bank occupies leading positions in terms of assets and capital in the Russian banking sector (it is among the top 10 banking groups). UniCredit Bank operates a wide branch network scattered across all Russia's federal districts with a focus on Moscow, as well as a representative office in the Republic of Belarus.

Key rating assessment factors

Very high likelihood of shareholder's extraordinary support. If necessary, UniCredit Group, acting through its parent bank structure UniCredit S.p.A. (hereinafter, the Supporting Organization, SO), will provide the Bank with both short-term and long-term financing and replenish its capital due to:

  • Strategic importance of the Russian market for UniCredit Group;
  • Pronounced operating integration (the SO exercises strategic and partially operating control over the Bank, being a part of the corporate investment business platform of UniCredit Group);
  • Significant operating, financial and reputational risks arising in the event of the Bank’s potential default.

The resulting assessment of country risk of the Group’s jurisdiction of presence against Russia's country risk is defined by ACRA as generally strong, the assessment of the SO’s creditworthiness – as moderately strong, the degree of relationships between the Bank and its shareholder – as very strong. Consequently, UniCredit Bank’s credit rating is determined by adding five notches up to the SCA.

Strong business profile (a+). Due to rather universal nature of the Bank's activities, diversification of its operating income is assessed as moderately high (the Herfindahl-Hirschman index is 0.22). The Bank's strategy for 2018 is generally in line with the current macroeconomic trends and assessed by ACRA as adequate. High assessment of the Bank’s management quality is conditioned by successful long-term experience of its top managers, both in Russia and abroad, and control exercised by UniCredit S.p.A. over the Bank’s operations.

A significant loss absorption buffer rests upon the Bank’s high capital adequacy by both Russian regulatory requirements (N1.2 and N1.1 amounted to 13.7% as of May 1, 2018) and international standards (Tier-1 equaled 17.1% as of April 1, 2018), which allows the Bank to withstand a growth of credit risk far exceeding 500 bps without notable regulatory consequences. Moreover, UniCredit Bank is marked by stable profitability regardless of economic cycle phases, which, coupled with a conservative dividend strategy, conditions rather strong capital generation in the last five years (the Bank’s averaged capital generation ratio, ACGR, is about 130 bps).

Adequate risk profile assessment is based on UniCredit Bank’s high-quality risk management system, manifested through transparency and independence in internal decision-making, regularly streamlined risk policies, as well as stress testing of capital adequacy, liquidity, and market risk indicators. The Bank’s loan portfolio (59% of assets) quality is defined as satisfactory due to an acceptable level of problem and potentially problem loans amounting to 9.5% of loan portfolio (including 5.7% of NPL90+, 3% of restructured loans, and 0.7% of potentially problem loans (as defined in the ACRA methodology)). Loan portfolio concentration on the top 10 groups of borrowers remains moderate (29%), while the concentration on industries bearing high risks is low (19% of core capital as of December 31, 2017).

Strong liquidity position is defined by a large amount of liquid and highly liquid assets, which translates into sufficient coverage of potential outflow of funds with highly liquid assets (since the beginning of 2018, the short-term liquidity ratio averaged 111%).

Satisfactory funding profile. The main share of UniCredit Bank’s resource base is formed by corporate deposits (66% of liabilities), mostly raised on a fixed-term basis. Approximately 40% of the Bank’s liabilities (RUB 400 bln) is constituted by funds from top 10 groups of depositors (creditors). UniCredit Bank does not raise funds from the regulator.

Key assumptions

  • UniCredit Group will retain its shareholder, strategic and operational control over the Bank;
  • Credit risk cost will not exceed 150 bps;
  • N1.2 capital adequacy ratio will be higher than 11% on 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:

  • Negative changes in UniCredit Group’s propensity to support the Bank;
  • Material decline in the SO’s creditworthiness.

Rating components

SCA: aa+.

Adjustments: none.

Support: SCA + 5 notches.

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, 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 assigned to AO UniCredit Bank was first published on June 26, 2017. The credit rating and its outlook are expected to be revised within one year following the rating action date (June 22, 2018).

Disclosure of deviations from approved methodologies. The STLSI and LTLSI were not calculated, the liquidity factor was assessed by ACRA on the basis of statements drawn up by AO UniCredit Bank in compliance with forms 0409122 and 0409125. ACRA assessed the funding and liquidity factor one notch higher, since the risk of low diversification of liabilities arising from a high proportion of corporate funds has already been taken into account while assessing the concentration on funds of the largest creditors/depositors.

The credit rating is based on the data provided by AO UniCredit Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of the Group of UniCredit Bank and statements of AO UniCredit Bank composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and AO UniCredit Bank participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by AO UniCredit Bank in its financial statements have been discovered.

ACRA provided additional services to AO UniCredit Bank. No conflicts of interest were discovered in the course of credit rating assignment.

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