The credit rating assigned to AO AKB "EXPRESS-VOLGA" (the Bank) stems from the high likelihood of extraordinary support from the controlling shareholder, PJSC Sovcombank (ACRA rating: A(RU), outlook Stable).
The Bank's standalone creditworthiness assessment (SCA) is determined by its moderately low business profile, satisfactory capital adequacy position, adequate risk profile, and weak funding and liquidity position.
Key rating assessment factors
High likelihood of extraordinary support from the shareholder. The Bank is ultimately controlled by PJSC Sovcombank (the Supporting Organization) whose creditworthiness is moderately high. In ACRA's opinion, the Supporting Organization is ready to provide the Bank with long-term and short-term financing and inject capital in view of the following:
- Tightness of legal relations between the Supporting Organization and the Bank and complete operational control over the Bank on the part of the Supporting Organization;
- Significant operational integration between the Bank and the Supporting Organization in terms of corporate governance, assets and liabilities, risk management. etc.;
- The Supporting Organization may suffer substantial financial losses in case the Bank goes bankrupt;
- High reputational risks for the Supporting Organization in case the Bank goes bankrupt.
ACRA's opinion on the support from the Supporting Organization is expressed in four notches up to the Bank's SCA (bb-).
Business profile assessment is moderately low (bb) as the Bank's long-term strategy does not provide for developing the Bank as an independent entity. The Bank's aim is to perform the financial rehabilitation plan and to merger with the Supporting Organization. The Bank holds a portfolio of securities that generates earnings that allow for repayment of the rehabilitation loan granted by the Deposit Insurance Agency. The Bank's operations are an integral part of the Supporting Organization's operations, which allows ACRA to assess the management quality in the Bank at the level equal to that of the Supporting Organization. The Bank's main income sources include interest earnings from securities and interbank loans; therefore, the operating income diversification of the Bank is assessed as medium.
ACRA assesses the Bank's capital adequacy position as satisfactory, given the fact that it is not required to maintain common regulatory ratios. According to the financial rehabilitation plan, the Bank must comply with capital adequacy ratios and a number of other standards. ACRA assumes that if the N1.2 ratio of the Bank falls below the benchmark, the Supporting Organization will take timely measures to keep up the ratio. As of August 01, 2018, the capital adequacy ratio N1.2 was 6.8%, which allowed the Bank to meet the requirements of the financial rehabilitation plan with a high enough margin. The Bank's own capacity to generate capital is assessed as strong: the average capital generation ratio (ACGR) under RAS was about 258 bps in the period from 2016 to 1H2018. The Agency notes that the Bank can withstand the growth of credit risk in the range of 200-300 bps and keep the required capital adequacy ratios.
Risk profile is assessed as adequate in view of the high credit quality of the Bank's portfolio of securities and interbank loans granted by the Bank. As the share of securities exceeds 65% of the total assets, the Bank is exposed, to some extent, to the market risk. The Bank's risk management system is assessed as adequate, as it is a part of the risk management system of the Supporting Organization.
The liquidity assessment is affected by short-term repurchase transactions used by the Bank to finance investments into securities with relatively long maturities. As of late 1H2018, the short-term liquidity shortage indicator (STLSI) of the Bank was negative in both base case (-RUB 17.048 bln) and stress (-17.6%) scenarios of ACRA, while the long-term liquidity shortage indicator (LTLSI) was 71.6%.
Concentrated funding profile of the Bank. The Bank's resource base mainly includes funds generated by securities involved in repurchase transactions. The main source of funds is the Supporting Organization, with the share of about 80% in the Bank's liabilities.
- The Bank's operations will remain within the frames of the financial rehabilitation plan;
- Tier 1 CAR (N1.2) will be above 6% in the next 12–18 months;
- In case of need, the Supporting Organization will support the Bank with capital and liquidity.
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 decline in the short-term liquidity shortage;
- Lower dependence of the resource base on the largest creditor/depositor;
- Growing strategic importance of the bank for the Supporting Organization.
A negative rating action may be prompted by:
- A loss of shareholding or operational control by the Supporting Organization;
- Worse credit quality of the portfolio of securities.
Support: +4 notches to SCA.
No outstanding issues have been rated.
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, the Methodology for Analyzing Member Company Relationships Within Corporate Groups, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating has been assigned to AO AKB "EXPRESS-VOLGA" for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (September 04, 2018).
The credit rating was assigned based on the data provided by AO AKB "EXPRESS-VOLGA", information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of AO AKB "EXPRESS-VOLGA" and the financial statements of AO AKB "EXPRESS-VOLGA" drawn up in compliance with Bank of Russia Ordinance No. 4212-U of November 24, 2016. The credit rating is solicited, and AO AKB "EXPRESS-VOLGA" participated in its assignment.
Disclosure of deviations from the approved methodology. The assessment of funding sources diversification (the "Funding" sub-factor) is increased by one notch, since the high (about 100%) share of attracted bank loans in the structure of liabilities is determined by the strong dependence of the Bank on the Supporting Organization's funds (78% of the total liabilities).
No material discrepancies between the provided information and the data officially disclosed by AO AKB "EXPRESS-VOLGA" in its financial statements have been discovered.
ACRA provided no additional services to AO AKB "EXPRESS-VOLGA". No conflicts of interest were discovered in the course of credit rating assignment.