The credit rating of Credit Agricole CIB AO (hereinafter, Credit Agricole or the Bank) stems from a high likelihood of strong support from its main shareholder Credit Agricole CIB. The Bank’s standalone creditworthiness assessment is high, which is supported by its strong business profile, substantial capital buffer, adequate risk profile, and adequate funding and liquidity.
Credit Agricole provides integrated banking services (lending, guarantees and letters of credit, trade finance, treasury) to large Russian companies and multinational corporations operating in Russia. As of end-June 2019, the Bank ranked 72nd in terms of equity and 95th in terms of assets in the Russian market.
The Bank is wholly owned, directly or indirectly (through Credit Agricole CIB Global Banking), by Credit Agricole CIB, a subsidiary of Credit Agricole S.A., a diversified banking holding, whose assets are located in the EU (predominantly, France, Italy, and the U.K.), the USA, Asia-Pacific (including Japan), and other countries.
High likelihood of strong shareholder support. ACRA is of the opinion that, in case of need, Credit Agricole S.A. (hereinafter, the Group), acting through Credit Agricole CIB (hereinafter, the Parent Bank or the Supporting Organization), may support the Bank with long-term and short-term funding, and capital injections (currently, the Bank has excessive capital). The Agency assesses as strong both the country risk of jurisdiction of the Supporting Organization compared to the country risk of Russia and the creditworthiness of the Supporting Organization.
The Agency is of the opinion that the degree of association between the Bank and the Supporting Organization is strong, because:
In view of the small size of the Bank compared to the Supporting Organization and the high reputational risks the Group (taking into account the scope of its Russian business) may face in case the Bank goes bankrupt, the resulting credit rating of Credit Agricole is on par with the Russian Federation.
Adequate business profile assessment stems from the strong positions of the Bank in servicing large Russian companies and multinational corporations operating in Russia. The Group’s scope of Russian business significantly exceeds the assets of Credit Agricole, because a substantial portion of credit risks is posted on the balance sheet of the Parent Bank or balance sheets of other banks in the Group. The Bank’s operating income diversification decreased because of a decline in the share of other income. The level of corporate management and strategic planning in the Bank is assessed as high and matching the best international practices.
Substantial capital adequacy margin amid low operational efficiency. High capital adequacy (N1.2 averaged 17.0% for the past twelve months preceding July 1, 2019) allows the Bank to withstand a substantial increase in the cost of credit risk (over 600 bps). As the credit portfolio risks are nearly 100% secured by the guarantees of the Parent Bank, ACRA is of the opinion that the likelihood of the stress scenario is extremely low. At the same time, the Bank’s profitability ratios were not high (in 2017–2018, average ROA of 0.3% and average ROE of 2.9%, as calculated based on net income), due to the weak operating efficiency of the business: the average NIM for 2016–2018 amounted to 2.3%, while CTI was 82%.
High risk profile assessment. The risk management contributors include transparency, adequate regulation, high underwriting standards, and sufficient control on the part of the Supporting Organization and the Group. The core of the portfolio includes loans provided to the largest Russian companies and subsidiaries of multinational corporations, whose credit quality is high. The Bank’s loan portfolio is characterized by a high concentration (as of December 31, 2018, the top ten groups of borrowers comprised 98.7% of the portfolio), however, almost the entire loan portfolio is secured by the guarantees issued by the Parent Bank or companies with high credit quality. This factor significantly mitigates credit risks taken by the Bank (the cost of risk is equal to zero in 2017–2019). The quality of the loan portfolio is assessed as high (no non-performing loans). The portfolio of bank loans (7.1% of assets) is made up of receivables from banks with a high level of creditworthiness. The market risk related to derivatives is assessed as low, because the transactions are of market nature and to the benefit of corporate clients who are borrowers of the Bank.
Strong liquidity position. The short-term liquidity shortage indicator remains positive in the base case scenario of ACRA; the liquidity shortage under the stress scenario is minimal and may be eliminated using intragroup interbank loans. The long-term liquidity position is also assessed as strong, as the long-term liquidity shortage indicator is more than 90%.
High-concentrated funding profile. The Bank’s liabilities (net of subordinated loans and derivatives) include corporate funds (93%) and interbank loans (6%) granted mainly by the Group’s banks. The concentration of largest lenders is considered as high because the share of funds from the single largest lender was 21% of liabilities (net of subordinated loans and derivatives) as of December 31, 2018, while the share of the ten largest lenders was 74%. On the other hand, ACRA assesses positively the mostly stable nature and predictable dynamics of balances on accounts and deposits of the largest corporate lenders.
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:
Loss of shareholding or operational control by the Supporting Organization or the Group, or a substantial decrease of Bank’s significance within the Group.
Standalone creditworthiness assessment (SCA): a-.
Support: on par with RF (ААА(RU)).
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 Relationships Between Rated Entities and Supporting Organizations outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating of Credit Agricole CIB AO was first published by ACRA on August 11, 2017. The credit rating and credit rating 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 Credit Agricole CIB AO, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of Credit Agricole CIB AO and the standalone financial statements of Credit Agricole CIB AO drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and Credit Agricole CIB AO participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by Credit Agricole CIB AO in its financial statements have been discovered.
ACRA provided no additional services to Credit Agricole CIB AO. No conflicts of interest were discovered in the course of credit rating assignment.
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