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ACRA affirms A-(RU) to “Bank “Saint-Petersburg” PJSC, outlook Stable

The credit rating of “Bank “Saint-Petersburg” PJSC (hereinafter, the Bank) is based on its stable and moderately conservative business model (in the context of the Russian banking market), coupled with an adequate capital adequacy. A weak and relatively concentrated risk profile still puts pressure on the Bank’s standalone creditworthiness, while its credit rating is supported by the Bank’s local systemic importance for Russia’s North-Western Federal District.

Being one of Russia’s largest regional banks, the Bank focuses on Saint-Petersburg, the Leningrad Region, Moscow, and Kaliningrad. Its key business lines are lending, corporate and retail cash management and banking services, trading on the foreign exchange and interbank markets, and transactions in securities. The Bank is among the twenty largest credit institutions on the Russian market in terms of own capital and assets.

Key rating assessment factors

Sustainable business model based on organic growth. The Bank’s positions are the strongest on the banking market of St. Petersburg and the Leningrad Region. The Bank has been demonstrating moderate business growth rates comparable with the industry average. We see a more active development of the retail lending business line, driven mainly by increasing volumes of mortgage lending, and we connect it with general economic trends first. The Bank's strategy for 2018–2020 aims at higher commission incomes. ACRA does not expect a significant transformation of the Bank’s business model in the next 12-18 months. The Agency notes the satisfactory level of competence and stability of the top management team of the Bank.

Adequate capital adequacy. A moderate asset growth coupled with a consistent profitability (ACGR at 89 bps in the last five years) and recapitalization measures (a RUB 3.2 billion SPO in August 2017) have allowed the Bank to maintain the loss absorption reserves in line with both regulatory requirements and Basel standards (as of late 2017, the Tier 1 CAR amounted to 12.39%). In the next 12–18 months, the capital will grow organically through higher profits. The Bank’s conservative policy with respect to reserves for non-performing loans has ensured a comfortable loss-absorbing cushion in the stress scenario of ACRA.

Risk profile assessment reflects a moderate share of problem loans on the books of the Bank, amid declining share of NPL90+ from 6.5% to 5.4% of the total loan book in the period from July 01, 2017 to January 01, 2018. The analysis carried out by ACRA revealed a number of companies demonstrating signs of deteriorating financial status, but this fact does not affect the risk profile assessment of the Bank. At the same time, ACRA notes a more conservative (compared to the average for private banks) coverage of NPLs (42%).

The risk profile assessment is still limited by the high market risk, which equaled 137.8% of Tier 1 capital as of December 31, 2017, as well as the concentration of the loan portfolio on high-risk industries (124.6% of core capital as of December 2017), which, however, tended to decline during 2017.

Adequate liquidity position. Although the Bank relies predominantly on short-term funding from money markets, a sufficient volume of high-liquid assets (around 10% of total assets) and a creditor-diversified base of customer funding ensure an adequate liquidity assessment. The Bank is able to withstand an outflow of client funds under ACRA’s base case scenario: as of end-December 2017, its short-term liquidity shortage indicator (STLSI) stood positive within a three-month forecast horizon, with the liquidity cushion amounting to around RUB 50 bln. Under ACRA’s stress scenario, the shortage ran at 5.9% of total liabilities, which is acceptable for a large Russian bank. ACRA’s stress scenarios include the assumption of a renewable nature of at least 50% of short-term (up to three months) corporate deposits.

Importance for regional economy. The Bank plays an important role in the economy of St. Petersburg and the Leningrad Region, being one of the three local bank leaders – as of April 1, 2018, it held about RUB 186 bln of deposits by individuals permanently residing in the North-Western Federal District, and another RUB 112 bln deposited by corporates. In addition, the Bank handles a significant volume of cash payments by St. Petersburg’s public sector companies and their employees. According to ACRA, a bankruptcy of the Bank may potentially cause problems for the financial sector and the socio-economic climate in the region. In terms of the credit rating, this is reflected in one notch added to the Bank’s standalone creditworthiness assessment (SCA).

Key assumptions

  • Maintaining strong competitive position in the core region;
  • Loan portfolio growth rate of 7–10% in 2018;
  • Cost of credit risk within 2.5–3%;
  • Tier-1 capital adequacy (N1.2) above 10% within the next 12-18 months;
  • Maintaining the current funding profile.

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 positive rating action may be prompted by:

  • A material decline of the share of problem loans in the loan portfolio;
  • Lower volume of assets associated with high market risks and lower concentration of the loan portfolio on high-risk industries.

A negative rating action may be prompted by:

  • A partial loss of systemic importance for the regional economy;
  • A substantial growth in the share of non-performing loans;
  • A much more aggressive growth strategy and/or dividend policy leading to a steady shrinkage of the Bank’s capital adequacy cushion.

Rating components

Standalone creditworthiness assessment (SCA): bbb+.

Adjustments: none.

Support: systemic importance, 1 notch up to the SCA.

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 and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating assigned to “Bank “Saint-Petersburg” PJSC was first published on December 21, 2016. The credit rating is expected to be revised within one year following the rating action date (June 28, 2018).

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

No material discrepancies between the provided data and the data officially disclosed by “Bank “Saint-Petersburg” PJSC in its financial statements have been discovered.

ACRA provided additional services to “Bank “Saint-Petersburg” PJSC. No conflicts of interest were discovered in the course of credit rating assignment.

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