The credit rating of China Construction Bank (Russia) Limited (hereinafter, CCBR, or the Bank) is based on the very high probability of external support fr om its parent company which has a high level of creditworthiness. The Bank’s standalone creditworthiness assessment (SCA) is moderately high due to its strong capital adequacy position, adequate risk profile assessment, adequate liquidity and funding position, and an adequate business profile assessment.
CCBR focuses on providing corporate banking services to major local and Chinese companies operating in Russia. The Bank is wholly owned by one of the world’s largest financial corporations (hereinafter, the Supporting Entity, the SE, or the Group).
key assessment factors
Very high likelihood of extraordinary support fr om the Supporting Entity. In ACRA’s opinion, the SE can provide sufficient long-term and short-term financing and capital injections to the Bank if necessary. This opinion is based on the following factors:
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The SE’s creditworthiness is high compared to the standalone creditworthiness of the Bank; the scope of the Bank’s business is not a factor that could lim it the effectiveness of potential support;
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The Group exercises complete shareholder and operational control over the Bank (the Group determines the Bank’s strategy and corporate risk management procedures and standards, taking into account Russian law);
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The Bank and the Group operate under the same brand and therefore a possible default of the Bank may be associated with the Group.
The Agency also takes into account the fact that the SE operates in a jurisdiction that differs from the jurisdiction of presence of the Bank, which makes the possibility of providing support dependent on the freedom of movement of capital between the countries. In addition, the termination of the Bank’s activities or its deconsolidation will not lead to the emergence of critical risks for the implementation of the group-wide strategy.
Due to the above, as well as taking into account possible reputational risks for the Group in the event of the Bank’s default, ACRA sets the Bank’s credit rating at AAA(RU).
The adequate business profile assessment stems from the strong assessment of the ownership structure amid relatively low diversification of operations and limited positions in the Russian banking services market. The Bank’s strategy is part of the Group’s overall development strategy for operations in Russia. CCBR provides the conditions necessary for expanding the SE’s client base in Russia, building relationships with contractors, and assessing risks and the market situation, etc. At the same time, the Group may perform lending operations directly with clients in Russia. Taking into account the fact that the significant part of credit business is represented as interbank lending in other credit institutions, the interest income generated by them is one of the sources of operating income.
ACRA assesses the Bank’s capital position as strong considering the high N1.2 regulatory capital adequacy ratio. The Bank’s capability to generate capital continues to be high — from 2017 to 2021 the averaged capital generation ratio (ACGR) remained within the boundaries of a strong assessment. Operating efficiency indicators, calculated for the past three years, put a certain degree of pressure on the capital adequacy assessment as the CTI (cost to income) ratio is heightened. The net interest margin (NIM) averaged over the same period is roughly in line with the indicators of peer banks. At the same time, the results of stress tests fully compensate for the impact of operational indicators on the capital adequacy assessment. CCBR’s shareholders do not require dividend payments, and this allows the Bank to further fortify its capital position.
The Bank’s adequate risk profile assessment is based on the low level of risk of its assets. As of June 30, 2022, the loan portfolio included receivables from a small number of groups of borrowers with high creditworthiness. However, the share of the loan portfolio in the structure of assets is comparatively small, and therefore its high concentration does not impact the risk profile assessment. Counterparties in off-balance sheet liabilities and credit institutions wh ere CCBR places funds also boast a high level of creditworthiness. The Bank’s securities portfolio consists of Russian government bonds.
The adequate liquidity and funding position is driven by a high volume of liquid and highly liquid assets, as well as significant concentration of funding sources. The short-term liquidity shortage indicator (STLSI) shows that the Bank has a liquidity surplus under ACRA’s base case and stress scenarios. The Bank’s long-term liquidity shortage indicator (LTLSI) corresponds to a strong assessment. The resource base is largely made up of funds of legal entities, which account for the lion’s share of liabilities. The Bank’s dependence on individual depositors is high, but the Agency notes that the relationships with creditors and depositors are highly predictable.
key assumptions
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The Group retaining its shareholding and operational control;
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Maintaining the N1.2 ratio above 12% within the 12 to 18-month horizon;
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Maintaining the current development strategy;
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Maintaining operating profitability;
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Maintaining the strong liquidity position.
potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
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Declining interest of the Group in developing business in the Russian Federation;
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Substantial deterioration of the financial standing of the SE;
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Deterioration of the Bank’s capital and liquidity positions;
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Fast growth of the share of loans in the Bank’s portfolio coupled with simultaneous deterioration of their quality.
RATING COMPONENTS
SCA: a.
Adjustments: none.
Support: ACRA is of the opinion that if necessary, the Supporting Entity will be able to provide the Bank with extraordinary support in the form of capital and/or liquidity. Taking into account the support factors, the Bank’s rating is set five notches above the SCA.
ISSUE RATINGS
No outstanding issues have been rated.
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, 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 China Construction Bank (Russia) Limited was published by ACRA for the first time on January 25, 2019. 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 China Construction Bank (Russia) Limited, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of China Construction Bank (Russia) Limited and the financial statements of China Construction Bank (Russia) Limited drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and China Construction Bank (Russia) Limited participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to China Construction Bank (Russia) Limited. No conflicts of interest were discovered in the course of credit rating assignment.
