The credit rating assigned to Black Sea Trade and Development Bank (hereinafter, BSTDB or the Bank) is driven by BSTDB’s standalone creditworthiness assessment (SCA) of a+, which stems from strong capital adequacy, a satisfactory risk profile, and adequate liquidity and funding positions.
BSTDB is an International Financial Institution (IFI) with a mandate of nurturing economic growth and regional cooperation through financing projects and trade activities, as well as providing financing to public and private entities in the Black Sea Region. The member states of BSTDB are the Russian Federation (16.50%), Greece (16.50%), the Republic of Turkey (16.50%), Romania (14.00%), the Republic of Bulgaria (13.50%), Ukraine (13.50%), the Republic of Azerbaijan (5.00%), the Republic of Albania (2.00%), the Republic of Armenia (1.00%), Georgia (0.5%), and the Republic of Moldova (0.5%).
Key rating assessment factors
The quality of management, strategy, and transparency of activities is satisfactory. BSTDB’s organizational structure and corporate governance are in line with the scope of its mandate. BSTDB’s strategy for 2019−2022 envisages expanded activities compared to previous years, with increased focus on public sector and infrastructure project financing (transportation, telecommunications, energy, etc.) in member states. As a response to the COVID-19 crisis, among a number of measures, the Bank diverted EUR 0.9 bln in 2020 in order to further support SMEs and essential infrastructure in member states. The Bank also provides operational, non-financial support to the recipients of funding such as sharing its expertise in feasibility studies and other assessments.
BSTDB’s capital adequacy position is strong. BSTDB has a significant amount of capital. As of end-June 2020, paid-in capital stood at EUR 686.6 mln in absolute terms (30% of total subscribed capital). The Bank’s equity has grown consistently over the years and is in line with its 2008 long-term capital increase plan, which was successfully completed in 2019. In 2008−2019, BSTDB’s total equity effectively doubled, whereas the balance sheet size grew three-fold. As of end-June 2020, the Bank’s total assets stood at EUR 2.473 bln (a 5.6% increase compared to end-year 2019), which resulted in a capital adequacy ratio (CAR; equity/total assets) of 33.6%. In ACRA’s opinion, the Bank’s successful track record of capital increase, coupled with the fact that there have been no membership withdrawals throughout the Bank’s existence of over 20 years, underlines the systemic importance of BSTDB for its shareholders. ACRA also notes the commitment mechanism built into the establishing agreement that holds a seceding member liable for its obligations. The Bank’s strong capital levels are complimented by consistent earnings over the years; at end-June 2020, return on equity (ROE) stood at 1.3%, as calculated by ACRA.
ACRA assesses BSTDB’s risk profile as satisfactory. The risk profile assessment is driven by a satisfactory risk management quality assessment. In addition, the risk profile exhibits relatively high country diversification, which coincides to the proportions of shareholder paid-in capital ownership with Turkey accounting for 25.4% of total asset exposure, followed by Greece and Russia with 18.1% and 12.8%, respectively. ACRA notes that matching asset exposure with capital proportions by shareholder is not part of the Bank’s aim. As of end-June 2020, some minority shareholder members enjoyed investments that were larger than their capital shares in the Bank. Since the Bank’s inception, lending to SMEs has been one of its primary objectives throughout the Black Sea region. Funding is provided to qualified projects in target sectors through development and commercial banks of the member states. As of end-June 2020, the credit portfolio of the Bank stood at EUR 1.9 bln (25.9% financial sector loans and 74.1% non-financial sector loans), which is 42% higher than year-end 2018 (EUR 1.3 bln). This was partially due to the Bank’s increased focus on public sector lending, which is in line with its 2019−2022 strategy. As of end-June 2020, non-performing assets (NPA) stood around 4%, as calculated by ACRA based on IFRS criteria for stage three impaired assets, which is up from around 3% at year-end 2019 due to the pandemic impacting the Bank’s assets. ACRA notes the preferred creditor status enjoyed by the Bank in its member states, as well as the Bank’s track record of maintaining low NPA levels through prudential risk management practices. The Bank also maintains an equity investment portfolio, which stood at EUR 28.4 mln as of end-June 2020 and consisted mostly of stakes in regional equity funds. The equity investment stood at 1.6% of the aggregate investment portfolio and the Bank does not see equity investments exceeding 2% of portfolio by 2022.
BSTDB’s liquidity and funding position is adequate. As of end-June 2020, BSTDB’s liabilities mostly consisted of issued debt (excluding ECP) that stood at EUR 1.405 bln (85% of total liabilities), long-term funding from other development and commercial financial institutions that stood at EUR 217mln (13% of total liabilities), as well as EUR 111 mln in euro commercial paper (7% of total liabilities). The Bank’s 2019−2022 strategy envisages an increase in borrowings to EUR 2 bln as it aims to fund its expanding public sector lending.
BSTDB’s liabilities are moderately diversified in terms of funding sources (Herfindahl-Hirschman index at 43%). ACRA notes the long tenure of the Bank’s mostly USD and EUR denominated outstanding debt with less than 1% of it maturing in 2020, relative match of currencies for assets and liabilities, and the high creditworthiness of development institutions providing the interbank funding.
ACRA assesses support from shareholder countries as moderate. This assessment is supported by two elements: ACRA’s view that the importance of BSTDB’s operations for shareholder countries is high and the moderate creditworthiness assessment of shareholder countries on an aggregate basis. However, the level of support from shareholder countries does not limit the SCA of the Bank, which drives the final rating.
BSTDB’s credit rating is AAA(RU), outlook Stable, under the national scale for the Russian Federation as per the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation.
Key assumptions
- Maintaining systemic importance for member states;
- Maintaining equity levels above 30% within the 12 to 18-month horizon;
- Maintaining credit and treasury portfolio quality.
Potential outlook or rating change factors under the international scale
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:
- Increase in asset quality as well as funding and liquidity metrics.
A negative rating action may be prompted by:
- Decrease in systemic importance for key member states;
- Deterioration in capital adequacy and asset quality.
Potential outlook or rating change factors under the national scale for the Russian Federation
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:
- Decrease in credit rating under the international scale.
Rating components under the international scale
SCA: a+.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating was assigned to Black Sea Trade and Development Bank under the international scale based on the Methodology for Assigning Credit Ratings on the International Scale to International Financial Institutions and Other Supranational Development Institutions. The credit rating was assigned to Black Sea Trade and Development Bank under the national scale for the Russian Federation based on the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
Credit ratings under the international scale and the national scale for the Russian Federation assigned to Black Sea Trade and Development Bank were published by ACRA for the first time on October 14, 2020. The credit ratings and outlooks of Black Sea Trade and Development Bank are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings are based on the data provided by Black Sea Trade and Development Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was conducted using IFRS reporting of Black Sea Trade and Development Bank. The credit ratings are solicited, and Black Sea Trade and Development Bank participated in their assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Black Sea Trade and Development Bank. No conflicts of interest were discovered in the course of the credit rating assignment.
