The credit rating of The joint-stock Bank “ROSEVROBANK” (hereinafter – REB or the Bank) is determined by its strong capital adequacy, satisfactory risk profile, and adequate funding and liquidity position. REB has a moderately high creditworthiness level compared to the other RD credit institutions.
REB is an organically expanding bank operating within the Central, North-West, Ural, South, Volga, and Siberia Federal Districts. Its priority business lines are lending to large companies (including state-owned ones) and medium-sized businesses, as well as issue of guarantees, cash management, salary projects, brokerage services, as well as factoring and leasing services offered through its affiliates “R.E. Factoring” and “RosEvroLeasing.”
Key rating assessment factors
Adequate business profile is determined by the Bank’s stable position in the area of corporate lending. The business profile assessment is further backed by a sufficient level of asset and operating income diversification. In the medium term, REB focuses on organic growth on the already familiar market, with an emphasis on preserving its above average operating efficiency (CTI was 35% as of December 31, 2016). The Bank’s strategy comes across as well-balanced, taking into account the current Russian banking market trends. REB plans to keep building up its competitive edge in the area of lending to public sector companies and increase the volume of issued guarantees.
Strong core capital safety buffer is attributed to the Bank maintaining a substantial buffer against losses as part of the accepted balance and off-balance risks in accordance with both the Russian regulatory requirements and the Basel standards (Tier-1 equaled 15.8% as of December 31, 2016), which enables REB to withstand the growth of credit risk by more than 500 bps. The 6.4% net interest margin (NIM) indicator helps maintain the Bank’s ability to generate capital from revenues (on average, around 300 bps within the last five years). Moderate dividend payments are also seen as a key factor of maintaining a comfortable capital adequacy cushion.
Satisfactory risk profile assessment is premised upon the Bank’s adequate risk-management system and acceptable loan portfolio quality. The share of bad debt equals to 10.6% of the portfolio and includes NPL90+ (3.7%), restructured loans (2.4%), and loans that ACRA believes to be troubled or potentially troubled (4.5%). That said, compared to the Bank’s peer group, its loan portfolio structure is marked by low concentration on high risk sectors (15.5% of core capital) and related parties (13.2% of core capital). The sizable securities portfolio (around 170% of core capital) rigged by a significant share of currency-nominated instruments with long-term maturities lies in the core of the Bank’s high market risk (over 150% of core capital). At the same time, ACRA points out the good credit quality of this asset category, which curbs the negative market risk effect that may potentially threaten the Bank’s financial stability.
In ACRA’s opinion, REB’s risk management system has a sufficient degree of independence and solid competencies. It plays an important role in the implementation of the Bank’s long-term growth strategy and its daily operations. REB conducts regular stress testing of its capital adequacy and liquidity parameters.
Adequate liquidity position is backed by the Bank’s liquid and highly liquid assets being sufficiently large to cover potential outflows (the last six months saw the liquidity coverage ratio, LCR, standing steadily close to 80%). ACRA also notes that it did not reveal a disproportion in the longer term (the Bank’s long-term liquidity shortage indicator (LTLSI) also stays at a comfortable level of 77%), while no large loan repayments anticipated within the next 12 months. The Bank’s securities portfolio consists of relatively high quality assets amid the low level of collateral utilization (6% of securities investments as of December 31, 2016, with some 80% of the portfolio featuring on the Bank of Russia’s Lombard List) and may serve as an additional liquidity source.
Well-balanced funding profile. The basis of the Bank’s funding are deposits of legal entities (65% of total liabilities). The Bank does not attract any funding from the regulator. ACRA notes that the Bank is not ostensibly reliant on funds from its largest creditor and/or group of 10 largest creditors.
Key assumptions
- Maintaining the current business model within the 12 to 18-month horizon;
- Loan portfolio growth rate of 5–10% in 2017;
- Cost of credit risk within 2–2.5%;
- Guarantees issuance increasing 25–40%, bolstering non-interest income;
- Tier-1 capital adequacy (Н1.2) above 9.5% 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 positive rating action may be prompted by:
- A material decline of the share of problem loans;
- An increase in the scale of operations while building up capital and maintaining margin and risk appetite levels, which should strengthen competitive positions of the Bank.
A negative rating action may be prompted by:
- A decline in capital adequacy parameters as a result of a rapid asset or cost of risk growth;
- A decline in the loan portfolio quality.
- An increase of the accepted level of market risk.
Rating components
Standalone creditworthiness assessment (SCA): a-.
Adjustments: none.
Support: systemic importance is absent.
Issue ratings
The Bank has no debt securities in free float.
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 the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to The joint-stock Bank “ROSEVROBANK” for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (April 26, 2017).
Disclosure of deviations from approved methodologies. To account for market risk in the rating model, ACRA has conducted a stress testing, the results of which, according to the Agency, more correctly reflect the scope of potential securities portfolio losses. The short-term liquidity shortage indicator (STLSI) was not calculated, while the short-term liquidity factor assessment was based by ACRA on the statements drawn up by The joint-stock Bank “ROSEVROBANK” in compliance with forms #0409122 and #0409125.
The assigned credit rating is based on the data provided by The joint-stock Bank “ROSEVROBANK”, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of The joint-stock Bank “ROSEVROBANK” and statements of The joint-stock Bank “ROSEVROBANK” composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and The joint-stock Bank “ROSEVROBANK” participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by The joint-stock Bank “ROSEVROBANK” in its financial statements have been discovered.
ACRA provided no additional services to The joint-stock Bank “ROSEVROBANK”. No conflicts of interest were discovered in the course of credit rating assignment.
