The credit rating of Bank “ROSSIYA” (hereinafter, Bank “ROSSIYA”, or the Bank) stems from its stable business profile along with satisfactory capital adequacy and risk profile assessments, and an adequate liquidity and funding position. The standalone creditworthiness assessment (SCA) is under certain pressure from the significant concentration of both assets and funding on the Bank’s largest clients. The Bank’s sustainable competitive advantages and a high likelihood of support from its shareholders have a positive impact on the Bank’s rating.
Bank “ROSSIYA” is owned by a group of well-known Russian entrepreneurs, with Yury Kovalchuk as its largest shareholder. The Bank is one of the leading universal banks in Russia. Currently, the Bank operates exclusively in the internal financial market of Russia.
Key rating assessment factors
The Bank’s business profile (bbb+) reflects its strong position in the Russian banking system. As of June 1, 2021, the Bank ranked 16th by capital among Russian credit institutions. In ACRA’s opinion, the Bank has a high quality brand. The Bank’s business is somewhat concentrated in Moscow, St. Petersburg, and the Republic of Crimea, and is moderately diversified (in 2020, the Herfindahl–Hirschman Index stood at 0.27). ACRA assesses management quality as satisfactory in the context of the Russian banking sector. The Bank’s strategy envisages organic growth in lending activities and assets in the existing business lines.
ACRA assesses the Bank’s capital adequacy as satisfactory. The Bank’s capital ratio under RAS (N1.2) stood at 9.2% as of June 1, 2021, which is within the Bank’s capital adequacy targets. According to a stress test performed by ACRA, the Bank’s capital demonstrates a moderate capability of absorbing credit risks within the 12 to 18-month horizon. According to ACRA’s estimates, the averaged capital generation ratio (ACGR) for 2016–2020 amounted to 48 bps, which reflects low profitability of the Bank’s business, which is concentrated on corporate lending. The operating efficiency of the Bank’s activities continues to be supported by the cost-to-income ratio (CTI).
The satisfactory risk profile assessment reflects the moderate level of non-performing loans of the Bank coupled with heightened concentration on the largest groups of borrowers. The share of problem and potentially bad debt, according to ACRA, was 11.5% of the portfolio at the end of 2020 (coverage of these loans by provisions was 90%), including Stage 3 loans and POCI under IFRS amounting to 10% of the portfolio. At the same time, the concentration of lending on high-risk sectors of the economy is moderate: loans to companies operating in the construction and real estate sectors account for about 61% of common equity.
The Bank’s securities portfolio (around 35% of assets) is of a good quality and well diversified. The Bank also possesses units in a closed-ended mutual investment fund, which is made up of fixed income securities of highly reliable issuers. Market and operational risks are consistently at acceptable levels and do not exceed the size of common equity.
Adequate funding and liquidity position. The Bank has a short-term liquidity surplus in ACRA’s base case scenario. In the stress scenario there is a slight deficit (not exceeding 5%). Long-term liquidity is marked by adequate coverage of liabilities by assets with corresponding maturities. The assessment of this factor is constrained by the concentration of funding on the largest group (more than 15% of the Bank’s liabilities) and the ten largest groups of creditors/depositors (over 40% of the Bank’s liabilities). The funding structure is traditionally marked by its dependence on the funds of corporate clients and is expected to remain unchanged on the credit rating horizon.
ACRA applies an individual upward adjustment to the SCA by one notch in order to highlight a sustainable competitive advantage of the Bank arising from the sanctions regime imposed on the Bank by foreign states, which results in relatively more favorable conditions for its business activities in Russia.
ACRA also adjusts the SCA to take into account the high likelihood of support from shareholders. The Bank is not a member of any identifiable group; however, ACRA takes into account the probability of provision of support to the Bank by shareholders and/or the companies they own. According to the Methodology for Analyzing Rated Entities Associated with a State or a Group, ACRA assesses the probability of such support as high, and therefore, adds two notches to the SCA.
- Maintaining the current business model over the 12 to 18-month horizon;
- Cost of credit risk remaining in the 2–3% range 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:
- Substantial increase of capital adequacy and/or stable generation of capital;
- Lower level of non-performing loans coupled with reduced loan portfolio concentration on the largest groups of borrowers;
- Increase in diversification of funding from sources and creditors.
A negative rating action may be prompted by:
- Decrease of capital adequacy ratios and/or deterioration in operating efficiency indicators;
- Aggressive growth of the loan portfolio at rates outpacing the market average and/or increase in share of problem loans in the loan portfolio;
- Significant increase in lending to high-risk industries and/or related parties;
- Deterioration in liquidity position.
- Individual adjustment owing to a sustainable competitive advantage: +1 notch;
- Shareholder support: +2 notches.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation 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 Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of Bank “ROSSIYA” was assigned by ACRA for the first time on August 8, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Bank “ROSSIYA”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS statements of Bank “ROSSIYA” and statements of Bank “ROSSIYA” drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and Bank “ROSSIYA” participated in its assignment.
Disclosure of deviations from the approved methodologies. Two notches were added to the SCA of Bank “ROSSIYA” due to the need to consider support from the shareholders, which exceeds the maximum possible adjustment as set forth in the Methodology for Analyzing Rated Entities Associated with a State or a Group.
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 additional services to Bank “ROSSIYA”. No conflicts of interest were discovered in the course of credit rating assignment.