Training on securitization, July 2–3

ACRA assigns ААА(RU) to Danske Bank, outlook Stable

The credit rating assigned to Danske Bank (the Bank) reflects the very high likelihood of extraordinary support from the parent company with high creditworthiness. The Bank's standalone creditworthiness assessment (SCA) is based on the strong capital adequacy, adequate risk profile, adequate liquidity and funding, and medium business profile.

The Bank is a credit institution ranking 104th in terms of assets and 118th in terms of equity among Russian banks. The 100% share in the Bank is owned by Danske Bank A/S (the Supporting Organization), the parent company of Danske Bank Group (the Group) operating in Denmark and other Nordic countries. The Bank offers comprehensive services to the Russian subsidiaries of Group’s customers and operates in the interbank and foreign exchange markets.

Key rating assessment factors

Very high likelihood of extraordinary support from the key shareholder. ACRA is of the opinion that, in case of need, the Supporting Organization will provide the Bank with short-term and long-term funding and capital injections. ACRA assesses the country risk of the Supporting Organization's jurisdiction (Denmark) against the country risk of Russia as strong. The Supporting Organization's creditworthiness is assessed by ACRA as strong.

The degree of integration between the Bank and its shareholder is assessed as strong in view of the following:

  • Pronounced operational integration (the parent company establishes corporate risk management procedures and standards);
  • The Supporting Organization issues guarantees for most loans granted by the Bank;
  • The Group is one of the key funding sources for the Bank;
  • The Bank's board of directors includes representatives of the Supporting Organization.

In view of the above, ACRA is of the opinion that the credit rating of the Bank is on par with the Russian Federation.

Adequate business profile is determined by the Bank's low positions in the Russian banking system and low diversification of sources of the operating income (which includes mainly interest income coming from loans issued to corporates and funds placed with other banks, as well as from income generated by foreign currency transactions).

The Bank's main strategic objective is to service and extend the client base of Danske bank Group in Russia. The range of services offered by the Bank includes lending, cash management, foreign exchange transactions, etc. The Bank has no plans to expand to new locations or market niches.

The ownership structure is transparent, and the corporate governance quality is high.

ACRA assesses the Bank's capital adequacy as strong. The Bank complies with the regulatory capital adequacy standards set forth by the Bank of Russia. As of May 01, 2018, the common capital adequacy ratio N1.2 was equal to 86.6%, which is much higher than the regulatory requirements and, according to ACRA stress tests, the Bank is able to absorb credit risks in the next 12–18 months.

The average capital generation ratio (ACGR) amounted to 617 bps for the period from 2013 to 2017, which is a result of the Bank's high capital generation capacity. The Bank pays out no dividend.

The operating effectiveness demonstrated by the Bank in the last three years is comparable with that of peers.

Adequate risk profile assessment stems from the high quality loan portfolio and the adequate quality of risk management.

The risk management system of the Bank matches the specifics and scope of its business. The risk management system is based on the standards of the Group. The Bank applies modern risk assessment techniques to determine risk appetite.

The risk profile assessment is impaired by the high concentration of the loan portfolio on the top 10 groups of borrowers (about 98% of the portfolio). The majority of loans issued by the Bank are covered by the guarantees of the Supporting Organization and parent companies of borrowers. As of January 01, 2018, the balance sheet of the Bank included no impaired loans.

The operational risk does not affect the risk profile assessment. The level of market risk is insignificant.

The funding and liquidity factor is assessed as adequate, as the Bank is characterized by the short-term liquidity surplus in both the base case and stress scenarios of ACRA, and the stable position on long-term liquidity.

The funding basis of the Bank includes corporate deposits and current accounts (51.7% of liabilities) and funds raised from financial institutions (47.8% of liabilities), mainly from Danske Bank A/S.

In case of need, the Bank has access to a significant amount of regulatory funding, as well as credit lines from the parent bank and other credit institutions.

Key assumptions

  • The current shareholding and operational control of Danske Bank A/S will not change;
  • The Bank will follow the current business model, and its operational performance and loan portfolio quality will not change.

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 lower propensity of the Group to support its business in Russia and a change in the ownership structure of the Bank;
  • A substantial decline in the Bank's operational performance and loan portfolio quality.

Rating components

SCA: a.

Adjustments: none.

Support: on par with RF.

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, the Methodology for Analyzing Relationships between Rated Entities and Supporting Organizations outside the Russian Federation, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to Danske Bank for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (June 7, 2018).

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

No material discrepancies between the provided information and the data officially disclosed by Danske Bank in its financial statements have been discovered.

ACRA provided no additional services to Danske Bank. No conflicts of interest were discovered in the course of credit rating assignment.

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