ACRA Trainings on Credit Analysis

ACRA assigns AAA(RU) to COMMERZBANK (EURASIJA) AO, outlook Stable

The credit rating assigned to COMMERZBANK (EURASIJA) AO is based on a high likelihood of necessary support from the shareholder with a strong financial profile. Standalone creditworthiness of the financial institution is defined by high capital adequacy, adequate risk profile and liquidity and funding position.

COMMERZBANK (EURASIJA) AO is a medium-sized bank in terms of assets and capital with a head office in Moscow and a branch in St. Petersburg. German Commerzbank AG is the sole shareholder of COMMERZBANK (EURASIJA) AO. COMMERZBANK (EURASIJA) AO’s ultimate business activity is providing integrated services (including loans, guarantees and letters of credit, trade finance services and performing FX trades and hedging transactions for clients) to international corporations present in Russia as well as to large Russian companies.

Key rating assessment factors

High likelihood of extraordinary support from the shareholder. In ACRA’s opinion, Commerzbank AG (hereinafter, the Supporting Institution, or SI), if needed, will provide COMMERZBANK (EURASIJA) AO with sufficient long-term and short-term financing and capital injections. In addition, COMMERZBANK (EURASIJA) AO has a Comfort Letter from the SI with respect to the COMMERZBANK (EURASIJA) AO’s contractual liabilities.

The final assessment of the respective country risks for jurisdictions of the foreign Supporting Institution (mostly Germany and other Western European countries) relative to Russia's country risk and the final creditworthiness assessment of the Supporting Institution are determined by the Agency as strong, and the degree of interrelations between COMMERZBANK (EURASIJA) AO and the Supporting Institution as very strong. The above is based on the following:

  • Implementation by the SI of its corporate business development strategy in Russia through COMMERZBANK (EURASIJA) AO;
  • Explicit operational integration between COMMERZBANK (EURASIJA) AO and the Supporting Institution (in terms of corporate governance and risk management);
  • Guarantees from the Supporting Institution covering certain loans issued by COMMERZBANK (EURASIJA) AO;
  • Possible reputational risks resulting from COMMERZBANK (EURASIJA) AO’s bankruptcy.

In view of the above, the standalone creditworthiness of COMMERZBANK (EURASIJA) AO is determined on par with the Russian Federation.

Adequate business profile primarily stems from a strong franchise of COMMERZBANK (EURASIJA) AO in servicing foreign companies active in Russia as well as large Russian companies. Operating income diversification is moderate (the Herfindahl-Hirschman Index equals 0.27). The quality of corporate governance and strategic planning system of COMMERZBANK (EURASIJA) AO is assessed as high considering the SI exercises significant control over COMMERZBANK (EURASIJA) AO’s activities as well as many years of top management’s record of accomplishment with both COMMERZBANK (EURASIJA) AO and Commerzbank Group.

Significant loss absorption buffer is confirmed by the high level of the COMMERZBANK (EURASIJA) AO's core capital according to statutory ratios (N1.2 and N1.1 stood at 26.3% as at September 1, 2017), which allows COMMERZBANK (EURASIJA) AO to withstand an increase in the cost of risk of more than 500 bps. The acceptable value of the averaged capital generation ratio of COMMERZBANK (EURASIJA) AO (ACGR of 112 bps for the last five years) results from annual dividend payouts in the amount close to net income generated. COMMERZBANK (EURASIJA) AO’s operating efficiency based on the average cost-to-income and net interest margin figures for the last three years substantially corresponds to operating efficiency of peer banks.

Adequate assessment of the risk profile of COMMERZBANK (EURASIJA) AO is primarily based on 1) quality risk management system stemming from exercise of control over risk functions by the SI, regular stress tests performed by the SI with respect to risks assumed by COMMERZBANK (EURASIJA) AO as well as from continuous improvement of risk procedures; and 2) high quality of the loan portfolio (40% of assets). The share of problem loans in the total portfolio is 3.5%, with NPL90+ standing at 3.2% and involuntarily restructured loans at 0.3%. The top ten groups of borrowers account for a substantial share of the portfolio (87%); at the same time, a sizable portion of issued loans is covered by guarantees from the SI. Asset concentration (other than the loan portfolio) on related parties equals 1.5x of the core capital, which, however, is the result of liquidity management practice within the Group. COMMERZBANK (EURASIJA) AO follows a conservative approach when placing funds on the interbank market (37% of assets) and forming a liquidity portfolio comprising high-liquid securities (13% of assets).

Adequate liquidity and funding position is based on COMMERZBANK (EURASIJA) AO’s high ability to fulfill obligations on the 90-days horizon considering availability of a substantial short-term liquidity surplus in both base case (around RUB 17 bln) and stress (around 24% of liabilities) scenarios as well as its ability to immediately raise funds in repo transactions (the securities portfolio is unencumbered) and to receive liquidity from the shareholder, if needed. We also note no imbalances on longer-term horizons (the long-term liquidity shortage indicator (LTLSI) is around 120%); no large repayments/ outflow of funds are expected on the 12-months horizon.

Deposits of legal entities (81% of liabilities) are the core of COMMERZBANK (EURASIJA) AO’s funding, with their concentration assessed as somewhat elevated (the largest client accounts for 13%, and top ten clients for 55% of liabilities). The rest of the resource base (19%) primarily comprises funding raised from the SI.

Key assumptions

  • Maintaining the current business model of COMMERZBANK (EURASIJA) AO on the 12 to 18-months horizon;
  • No significant changes in the shareholding structure on the 12 to 18-months horizon;
  • Capital adequacy ratio (N1.2) is above 15% on the 12 to 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 negative rating action may be prompted by:

  • A declining willingness of the sole shareholder to support COMMERZBANK (EURASIJA) AO;
  • A deterioration of creditworthiness of the Supporting Institution.

Rating components

Standalone creditworthiness assessment (SCA): a+.

Adjustments: no.

Support: on par with RF.

Issue ratings

No issues in circulation.

Regulatory disclosure

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 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.

Disclosure of deviations from approved methodologies. With respect to the funding and liquidity factor, the assessment of funding sources diversification is increased one notch considering high volatility of interbank commitments in the previous periods and that clients’ funds can be replaced by funding from the SI relatively easily.

The credit rating has been assigned to COMMERZBANK (EURASIJA) AO for the first time. The credit rating and credit rating outlook are expected to be revised within one year following the rating action date (October 10, 2017).

The credit rating was assigned based on the data provided by COMMERZBANK (EURASIJA) AO, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of COMMERZBANK (EURASIJA) AO, and the financial statements of COMMERZBANK (EURASIJA) AO drawn up in compliance with Bank of Russia Ordinance No. 4212-U of November 24, 2016. The credit rating is solicited, and COMMERZBANK (EURASIJA) AO participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by COMMERZBANK (EURASIJA) AO in its financial statements have been discovered.

ACRA provided no additional services to COMMERZBANK (EURASIJA) AO. No conflicts of interest were discovered in the course of credit rating assignment.

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