The credit rating of JSC "Denizbank Moscow" (hereinafter, the Bank) is based on the Bank’s fairly high standalone creditworthiness assessment (SCA) that stems from the adequate business profile, strong capital adequacy, satisfactory risk profile and adequate funding and liquidity position.
The Bank is a Russian subsidiary of a foreign bank, with its sole office in Moscow. It is wholly owned by Denizbank A.S. based in Turkey (including 51% through Denizbank AG based in Austria). In its turn, the parent bank is a part of the Group of Emirates NBD Bank PJSC controlled by the Dubai Government. The Bank ranks 101st by equity among Russian credit institutions. The Bank’s core line of business includes comprehensive services (including lending and project financing, guarantees and letters of credit, cash and settlement services) to companies involved in export and import operations between Russia and Turkey and Turkish entities operating in Russia most of whom are customers of Denizbank Financial Services Group (the Group).
KEY ASSESSMENT FACTORS
The adequate business profile stems primarily from the Bank’s strong franchise in servicing the Group’s customer companies in Russia. The operating income diversification is relatively low (the Herfindahl-Hirschman Index is 0.39) due to the nature of the Bank’s business. The Agency notes a positive dynamics in the Bank's equity, which has a positive impact on the business profile assessment. The system of corporate governance and strategic planning is assessed as adequate, given the significant regulatory control exercised by parent Denizbank A.S. over the Bank’s operations, and many years of successful work experience of top managers in both the Bank and the Group.
The significant loss absorption buffer is driven by a high level of common capital under the regulatory standards (N1.2 = 19.2% as of July 1, 2021) that allows the Bank to withstand the growth in the cost of credit risk by more than 500 bps. The high average capital generation ratio (ACGR at about 400 bps over the last five years) is a result of a stable profitability of business and no dividend payouts. The operational efficiency is assessed as high, based on the three-year average CTI (23.6%) and NIM (about 6.0%).
The satisfactory risk profile assessment is underpinned by an acceptable share of potentially problem, in ACRA's opinion, loans in the Bank’s loan portfolio (8.4%, no NPL90+), and a moderate proportion of loans granted to companies operating in the high-risk industries. At the same time, the concentration on the top 10 groups of customers is extremely high: 79% of the portfolio, which is somewhat offset by guarantees issued by parent Denizbank A.S. for a number of loans. The Bank has been adhering to a conservative policy in its operations in the interbank market (11% of assets as of April 1, 2021) and in the formation of liquidity portfolio mostly consisting of high-liquid corporate securities with the duration of up to two years (14% of assets). The quality of the off-balance sheet contingent liabilities is assessed as adequate.
The adequate funding and liquidity position is due to the Bank’s fairly high ability to perform its payment obligations within the 90-days horizon, given a surplus of short-term liquidity in the base case scenario (over RUB 2 bln) and an insignificant shortage in the stress scenario (less than 2% of liabilities), as well as the possibility of instant attraction of funds through repurchase transactions (the securities portfolio is not encumbered). No imbalances are observed for longer periods (the long-term liquidity shortage indicator, LTLSI, is above 100%), and ACRA does not expect large outflows of funds in the next 12 months.
The resource base is volatile in view of a rather high concentration on the largest lenders (the share of funds held by the top 10 groups as of April 1, 2021 was 89.7% of liabilities). At the same time, the basis of the Bank's funding is formed by funds raised from parent Denizbank A.S. (32.2% of liabilities) and through corporate deposits (another 41%); no funds are attracted from the Bank of Russia.
The neutral assessment of support reflects the results of a comparison of the creditworthiness of the Bank and its parent entity.
KEY ASSUMPTIONS
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Adhering to the current business model within the 12–18 months horizon;
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Maintaining the Bank's market positions in equity;
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Common capital adequacy ratio (N1.2) above 15% within the 12–18 months 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 significantly lower concentration of the loan portfolio on top customers amid a substantial decline in the share of potentially problem loans in the loan portfolio.
A negative rating action may be prompted by:
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Lower volume and/or diversification of operating income;
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A significant growth in the share of problem loans in the Bank’s loan portfolio;
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The need to provide financial resources to parent Denizbank A.S.
RATING COMPONENTS
SCA: a-.
Adjustments: none.
Support: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating assigned to JSC "Denizbank Moscow" was first published by ACRA on September 6, 2018. 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 the data provided by JSC "Denizbank Moscow," information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC "Denizbank Moscow," and the financial statements of JSC "Denizbank Moscow" drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC "Denizbank Moscow" participated in its assignment.
In assigning the credit ratings, 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 JSC "Denizbank Moscow." No conflicts of interest were discovered in the course of credit rating assignment.
