Training on Forecasting September 17–18

ACRA affirms АА-(RU) to Bank RRDB (JSC), outlook Positive, and АА-(RU) to bond issues

ACRA has affirmed the credit rating of Bank RRDB (JSC) (hereinafter, the Bank) at AA-(RU), outlook Positive, and affirmed the credit ratings of the Bank's bond issues (ISIN RU000A0ZYCJ8, RU000A0ZYQX9, RU000A100691) at AA-(RU). The Positive outlook reflects ACRA's expectations with respect to the Bank’s business expansion and diversification, and further development of its franchise under the Bank’s strategy, which may influence the business profile assessment in the middle term.

The credit rating stems from the Bank's sustainable business profile and strong capital adequacy. The standalone creditworthiness assessment (SCA) is under certain pressure from a high concentration of both assets and funding on the Bank’s affiliates, namely, Rosneft Group companies, as well as from risks arising from the fast-track development strategy of the Bank.

Bank RRDB (JSC) is owned and controlled by Rosneft, the Russia’s largest oil company and one of the largest oil companies in the world. The Bank acts as a settlements center for Rosneft and its subsidiaries. The Bank provides a wide range of services to Rosneft's counterparties, clients, and employees.

Key rating assessment factors

High likelihood of support from the parent company. ACRA believes that the creditworthiness of Rosneft is strong and the company has sufficient resources to support the Bank with capital and liquidity. ACRA notes that in recent years, the shareholder has significantly recapitalized the Bank, which confirms the shareholder’s commitment to develop the Bank’s business. The high likelihood of support is also backed by a deep operational integration between the Bank and Rosneft. On the other hand, the assessment of likelihood of support is capped by a small size of the Bank compared to Rosneft's assets and operating income. Therefore, the Bank SCA is adjusted 3 notches up.

The business profile assessment reflects the Bank's strong positions in the banking sector of Russia: the Bank ranks 10th in terms of capital and 15th in terms of assets among Russian banks; the Bank has a high-quality brand, and its operating income is highly diversified. The business profile assessment still includes the specific market niche of the Bank, as currently it is focused on servicing the fuel and power companies, and the long-term risks associated with the Bank’s fast-track development strategy, which provides for a rapid increase in assets.

The Bank acts as a temporary administrator of Peresvet Bank (the procedure is supposed to take 15 years). ACRA estimates the Bank’s engagement in the rehabilitation as neutral in terms of its creditworthiness.

ACRA estimates the Bank’s capital adequacy as strong, which is positive for the SCA. In its audited IFRS financial statements, the Bank did not disclose the Tier 1 ratio. Аs of June 1, 2019, the RAS N1.2 capital adequacy ratio was 18.45%. ACRA assumes that, in the long term, the capital adequacy ratio will remain at the level that ensures a high capacity to absorb potential credit risks. According to the ACRA's stress test, the Bank has an exceptionally high capacity to absorb credit risks on the 12 to 18-months horizon, even taking into account the expected significant increase in the loan portfolio.

The satisfactory risk profile assessment reflects the level of non-performing loans (that has remained very low), combined with the loan portfolio concentration on the fuel and power companies. According to the Bank’s IFRS statements as of January 1, 2019, the volume of impaired, including non-overdue, and overdue loans was 2.6% of the total loan portfolio. The Bank’s strategy includes a significant increase in lending to new borrowers from various sectors of the economy, which caps the risk profile assessment.

The quality and diversification of the Bank’s portfolio of securities is good, as the portfolio includes bonds issued by the Russian Government and quasi-sovereign borrowers, as well as by the largest Russian non-financial corporations and banks.

The funding and liquidity factor is assessed as adequate, taking into account a short-term liquidity surplus showed in the base case and stress scenarios and a strong long-term liquidity position of the Bank.

At the same time, a very high funding concentration on Rosneft and related companies has a restraining effect on this factor. The Bank’s strategy assumes a gradual funding diversification, primarily, in the corporate sector, but ACRA does not expect any major changes in the funding structure on the 12 to 18-months horizon.

Key assumptions

  • The credit risk costs at about 2% within the 12 to 18-month horizon;
  • NPL90+ not higher than 5% within the 12 to 18-month horizon;
  • N1.2 capital adequacy ratio exceeding 12%.

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Successful development of the Bank, further implementation of its five-year strategy, and a stably low level of problem loans;
  • Lower loan portfolio concentration on the largest groups of borrowers;
  • Increased funding sources diversification.

A negative rating action may be prompted by:

  • Substantial growth in the share of problem loans in the loan portfolio;
  • Substantial decrease in returns and capital adequacy (N1.2 ratio below 12%);
  • Significant shrink in the scope of functions and importance of the Bank within the Rosneft group;
  • Deteriorating liquidity position of the Bank.

Rating components

SCA: а-.

Adjustments: Group influence: 3 notches up to SCA.

Bank RRDB (JSC) (ISIN RU000A0ZYCJ8), maturity date: October 12, 2020, issue volume: RUB 10 bln, — AA-(RU).

Bank RRDB (JSC) (ISIN RU000A0ZYQX9), maturity date: July 30, 2021, issue volume: RUB 5 bln, — AA-(RU).

Bank RRDB (JSC) (ISIN RU000A100691), maturity date: March 08, 2024, issue volume: RUB 5 bln — AA-(RU).

Credit rating rationale. The issues represent senior unsecured debt instruments of Bank RRDB (JSC). Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them pari passu with other existing and future unsecured and unsubordinated debt obligations of the Bank. According to the ACRA methodology, the credit rating of the issues is equivalent to that of Bank RRDB (JSC), i.e. AA-(RU).

Regulatory disclosure

The credit ratings were assigned to Bank RRDB (JSC) and bonds (ISIN RU000A0ZYCJ8, ISIN RU000A0ZYQX9, ISIN RU000A100691) issued by Bank RRDB (JSC) 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 Member Company Relationships Within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. To assign a credit rating to the above bond issues the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied.

The credit rating assigned to Bank RRDB (JSC) was first published by ACRA on July 25, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit ratings of the above bonds were first published by ACRA on October 9, 2017 (ISIN RU000A0ZYCJ8), January 31, 2018 (ISIN RU000A0ZYQX9), and March 14, 2019 (ISIN RU000A100691). The credit ratings are expected to be revised within one year following the publication date of this press release.

The above credit ratings are based on the data provided by Bank RRDB (JSC), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of Bank RRDB (JSC) and statements of Bank RRDB (JSC) composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 08, 2018. The credit ratings are solicited, and Bank RRDB (JSC) participated in their assignment.

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

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

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