Training on sovereign risk credit analysis, October 24

ACRA assigns AA(RU) to Bank GPB (JSC), outlook Stable

The credit rating of Bank GPB (JSC) (hereinafter – Gazprombank or the Bank) is based on its strong and stable business profile, adequate capital adequacy position, satisfactory liquidity and funding position, and satisfactory risk profile. The rating is additionally supported by Gazprombank’s critical systemic importance for the Russian financial market.

Gazprombank is one of Russia’s largest universal financial institutions that specializes on lending and other banking services rendered to large businesses. Its largest shareholders are PJSC Gazprom and NPF GAZFOND.

Key rating assessment factors

Strong business profile of Gazprombank is characterized by its sustainable franchise, primarily in the area of lending to large businesses. We are of opinion that one of Gazprombank’s strongest competitive advantages is its close operational and strategic cooperation with PJSC Gazprom. The Bank is one of the industry leaders in terms of capital and assets. Its business profile assessment is also supported by the high quality of its corporate governance and reasonable development strategy.

Adequate capital adequacy assessment. Gazprombank maintains its Tier-1 capital adequacy (IFRS) safety margin by means of state-run capital increase programs and due to its ability to generate reasonable amounts of new capital (in the range of 30–50 bps). This enables Gazprombank to withstand significant increases of the cost of risk (over 500 bps). However, the Bank’s current regulatory capital adequacy level hinders the aggregate assessment of this factor.

Neutral risk profile position. The share of problem loans (IFRS) (share of NPL90+ amounted to 2.5% as of end of June 2016) is relatively low. At the same time, the Bank’s balance sheet incorporates a number of large loans, which ACRA classified as problem loans, but risks related to these loans are partially offset by loan collateral, including that of high quality. With that, certain types of specialized loans and direct investments make up over 100% of the Bank’s core capital. The Bank’s system of management is characterized by adequate risk management quality and a holistic nature of risk policies implemented by Gazprombank in its activities.

Adequate liquidity management policy. The Bank’s liquidity position is assessed as rather comfortable: under the ACRA base case and stress scenarios, the Bank can withstand an outflow of customer funds with a significant margin. Per ACRA estimates, large obligation repayments expected within the nearest 12–18 months will not result in a worsening of the Bank’s liquidity.

Current funding profile is characterized by a pronounced concentration on the funds of PJSC Gazprom (19.3% of total liabilities as of 1H2016). As ACRA would like to point out however, the Bank’s relationship with this lender is marked with stability and predictability.

Critical systemic importance of Gazprombank for the Russian financial market. In our opinion, a default of Gazprombank may lead to a systemic crisis within certain segments of the Russian banking market and a number of industrial sectors, which will make a perceptibly negative impact on the financial stability and the state of Russian economy as a whole. We should point out the critical importance of the Bank’s uninterrupted operations for PJSC Gazprom and a number of national economic leader companies. Gazprombank is listed as a credit institution of systemic importance according to the criteria set forth by the Bank of Russia.

Key assumptions

  • Maintaining strong competitive positions in key business segments;
  • Cost of credit risk is within 1–2%;
  • Net interest margin is within 2.5–3%;
  • Tier-1 capital adequacy (N1.2) is above 8% within the 12 to 18-month horizon;
  • Moderate growth of diversification of loan portfolio and sources of income;
  • Maintaining the current funding structure.

Potential outlook or rating change factors

A positive rating action may be prompted by:

  • Capital increase by the key shareholders, which the Bank expects to take place in 2016–2017, while maintaining a conservative risk appetite;
  • Material reduction of the share of problem loans;
  • Implementation of the strategy of loan portfolio diversification with a simultaneous reduction of the share of largest borrowers;
  • Increased diversification of the Bank’s largest lenders structure.

A negative rating action may be prompted by:

  • Material decline of core capital adequacy as a result of a higher-than-capital growth of assets under risk or significant losses (increased cost of risk);
  • Implementation of a more aggressive lending policy, which will lead to a deterioration of the Bank’s risk-profile assessment; 
  • Deterioration of the operating environment in the Russian Federation, which could adversely affect the Bank's ability to generate new capital, as well as its asset quality.

Rating components

Standalone creditworthiness assessment (SCA): a.

Adjustment: systemic importance, 3 notches up.

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 and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating has been assigned to Bank GPB (JSC) for the first time. The credit rating and its outlook are expected to be revised within 12 months following the rating action (November 22, 2016).

The assigned credit rating is based on the data provided by Bank GPB (JSC), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed by using the consolidated IFRS statements of the Gazprombank Group and the statements of Bank GPB (JSC), drawn up in compliance with the Bank of Russia Ordinance No. 2332-U of November 12.11.2009. The credit rating is solicited, and Bank GPB (JSC) participated in its assignment.

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

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

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