The credit rating assigned to AO MUFG Bank (Eurasia) (hereinafter, the Bank) is based on the very high likelihood of extraordinary support from Mitsubishi UFJ Financial Group, Inc., the parent entity having high creditworthiness (hereinafter, MUFG or the Group). The Bank is characterized by the high standalone creditworthiness assessment (SCA) that takes into account the strong capital adequacy positions, adequate risk profile assessment, adequate liquidity and funding positions, and medium business profile.
As of September 01, 2018, the Bank ranked 87th by assets and 54th by equity in the Russian market. MUFG Bank, Ltd. (hereinafter, the Supporting Organization), the largest Japanese bank and a key financial entity of the Group, is the sole shareholder of the Bank. The Bank's business includes universal banking and lending services to Japanese companies operating in Russia and other corporate customers of the Group, as well as interbank and foreign exchange transactions.
Very high likelihood of extraordinary support from the shareholder. In ACRA's opinion, in case of need, MUFG Bank, Ltd. may provide the Bank with long-term and short-term financing and inject capital. ACRA assesses the country risk of the Supporting Organization's jurisdiction (Japan) against the country risk of Russia and the Supporting Organization's creditworthiness as strong.
The degree of integration between the Bank and the shareholder is assessed as very strong in view of the following:
Taking into account the small size of the Bank against its Supporting Organization and possible high reputational risks for the Supporting Organization in case the Bank goes bankrupt, the credit rating of the Bank is determined on par with the Russian Federation.
The business profile reflects the Bank's medium positions in the Russian banking system and low diversification of operating income that mainly includes interest payments on corporate loans and bank deposits and income from foreign exchange transactions.
The Bank's strategy includes services to the Group's customers in Russia as the main line of business. In the next 12–18 months, the Bank has no plans to develop business lines and take additional risks associated with that.
The ownership structure of the Bank is completely transparent. The assessment of the corporate governance strategy and quality is high.
Very high loss absorption buffer. The Bank has maintained high regulatory capital adequacy ratios (as of September 01, 2018, the N1.2 core capital adequacy ratio was 105.5%), which, in combination with the high share of guaranteed loans (91% of the portfolio as of July 1, 2018), allows the Bank to withstand a significant increase in the cost of risk by more than 500 bps in the next 12–18 months, according to the ACRA stress tests.
Over the past five years, the averaged capital generation ratio (ACGR) has exceeded 700 bps due to the stable profitability of the Bank coupled with the high operating performance indicators: for the past three years, the CTI (cost to income) ratio amounted to about 24% and the NIM (net interest margin) to about 5%.
Adequate risk profile. The Bank's risk management system matches the specifics and scale of its business; the system is based on the requirements of the Group and closely monitored by the Supporting Organization.
As of July 01, 2018, the Bank had no overdue or impaired loans, which is a result of its lending policy focused primarily on subsidiaries of Japanese companies and international corporations with a high level of creditworthiness. Most of the Bank's loans are covered by guarantees issued by the Supporting Organization and the parent companies of borrowers. The risk profile of the Bank is impacted by the high concentration of the portfolio on the top 10 groups of borrowers (about 75% of the portfolio).
The level of operational risk does not affect the risk profile assessment. The market risk of the Bank is insignificant.
The "funding and liquidity" factor is assessed as adequate. The Bank demonstrates a surplus of short-term liquidity in both the base case and in the stress scenarios of ACRA. The Agency assesses the Bank's long-term liquidity position as strong.
In addition, the Bank has access to significant credit facilities from the parent bank and other credit institutions, as well as to regulatory funding.
The funding factor is pushed down by the concentration of the Bank's resource base on corporate customers' funds. As of July 01, 2018, the share of funds of the largest lender amounted to about 19% of liabilities, and the share of the top 10 lenders was 71% of liabilities.
The Bank's funding is based on corporate deposits and current accounts, as well as funds raised from the parent organization: 81.0% and 18.6% of liabilities as of July 01, 2018. At the same time, the risks of high concentration on corporate funds has been taken into account in assessing the concentration on the funds of the largest lenders, therefore, the Agency has not reduced the funding factor assessment in this regard.
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:
Support: on par with the RF.
There are no outstanding issues.
There are no outstanding issues.
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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating has been assigned to AO MUFG Bank (Eurasia) for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (October 1, 2018).
Disclosure of deviations from the approved methodologies. The "funding and liquidity" factor assessment is increased by one notch, as the risks of low diversification of the liabilities due to concentration on the corporate funds have been taken into account in assessing the concentration on the largest creditors.
The credit rating was assigned based on the data provided by AO MUFG Bank (Eurasia), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was carried out using the IFRS statements of AO MUFG Bank (Eurasia) and the financial statements of AO MUFG Bank (Eurasia) drawn up in compliance with Bank of Russia Ordinance No. 4212-U of November 24, 2016. The credit rating is solicited, and AO MUFG Bank (Eurasia) participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by AO MUFG Bank (Eurasia) in its financial statements have been discovered.
ACRA provided no additional services to AO MUFG Bank (Eurasia). No conflicts of interest were discovered in the course of credit rating assignment.
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