Training on Forecasting September 17–18

ACRA affirms AAA(RU) to ING BANK (EURASIA) JSC, outlook Stable

The credit rating of ING BANK (EURASIA) JSC (hereinafter, the Bank) derives from the Bank’s adequate business profile, strong capital adequacy, adequate risk profile (regardless of the high sector concentration of the loan portfolio), and adequate liquidity. The credit rating of the bank also benefits from the high likelihood of financial support from the Bank's parent entity, ING Bank N.V. (the Supporting Organization).

ING BANK (EURASIA) JSC is a 100% subsidiary of ING Bank N.V., a part of ING Group, a major European financial group headquartered in Amsterdam and operating in more than 40 countries as of July 2019. In Russia, the bank has traditionally focused on blue-chip companies and derivative transactions.

Key rating assessment factors

High likelihood of support from the Supporting Organization. Our opinion rests on the very strong ties between the Bank and its Supporting Organization (in view of the strategic importance of the Russian market for the ING Group), deep operational integration between ING BANK (EURASIA) JSC and the Supporting Organization, and the availability of on-demand, direct and permanent support from the Supporting Organization, including guarantees for some loans issued by the Bank, and the revolving credit facility.

The resulting assessment of the country risk of jurisdiction of the Supporting Organization is strong as compared to the country risk of Russia. The creditworthiness of the Supporting Organization is also assessed by ACRA as strong. In accordance with the Methodology for Analyzing Relationships between Rated Entities and Supporting Organizations outside the Russian Federation, ACRA assesses the likelihood of support as high, and therefore, the credit rating of the Bank is on par with the Russian Federation.

The Bank's business profile (a) reflects its relatively high positions in the Russian banking system: as of July 1, 2019, the Bank ranked 25th in terms of capital and 26th in terms of assets among Russian banks. The Bank is part of the ING Wholesale Banking division, which allows it to attract high-quality Russian and international clients, some of which are serviced simultaneously by both the Russian bank and the parent bank. At the same time, the Bank does not seek to expand neither geographically nor in terms of new business niches significantly in the Russian Federation.

The Bank's business diversification is low: as of year-end 2018, the Herfindahl – Hirschman Index used by ACRA to estimate the operating income diversification increased to 0.56 from 0.20 a year earlier. At the same time, ACRA notes certain volatility of the operating income caused by the business model of the Bank. The Bank’s strategy is in line with its parent’s overall approach to developing markets that is underlined by very conservative risk-taking approach.

ACRA assesses the Bank’s capital adequacy as strong. Tier I capital as of April 1, 2019 was 26.4%. The RAS capital adequacy ratio (N1.2) was 20.1% as of July 1, 2019, which, according to the ACRA stress test, reflects the Bank’s ample capacity to absorb credit risks on the 12 to 18-months horizon.

The average capital generation ratio (ACGR) calculated net of dividend payments for the period from 2015 to 2018 is 20 bps, which reflects the dividend policy of ING Group with respect to the Bank. In general, the Bank’s capital adequacy policy is in line with the Group’s policy.

The Bank's risk profile is assessed as adequate thanks to a combination of the good quality of both the loan portfolio and the securities portfolio. According to the Bank's IFRS financial statements, as of January 1, 2019, the Bank had no impaired or overdue loans, which is a standard situation for the Bank and reflects its adequate risk management policy that solely focuses on lending to companies with a high credit quality. In assessing the risk profile, ACRA also took into account a high concentration of the loan portfolio on the largest groups of related borrowers, however this is mitigated by the good credit quality of such borrowers.

The funding and liquidity factor is assessed as adequate, which is underpinned by the surplus short-term liquidity in both base case and stress scenarios of ACRA, a stable position on long-term liquidity, and independence from regulatory funding. The main contributors to the Bank’s strong liquidity position include the Bank’s high-quality portfolio of debt securities (11% of total assets) and the access to a significant amount of regulatory funding, in case of need. In addition, the Bank benefits from a substantial revolving credit facility provided by the Supporting Organization. At the same time, the ACRA's funding quality assessment includes the Bank’s significant concentration on major corporate clients.

Key assumptions

  • Common capital adequacy (N1.2) is not expected to dip below 12% within the 12 to 18-months horizon;
  • NPL90+ is not expected to exceed 5% within 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-months horizon.

A negative rating action may be prompted by:

  • Sudden deterioration of risk management prudence; substantial growth of NPLs in the loan portfolio;
  • Sustained lower level of operational income diversification;
  • Significant drop in capital adequacy metrics and internal capital generation capacity of the Bank.

Rating components

SCA: aa.

Adjustments: none.

Support:  On par with RF.

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.

The credit rating of ING BANK (EURASIA) JSC was first published by ACRA on August 10, 2017. The credit rating and credit rating outlook are expected to be revised within one year following the publication date of this press release.

Disclosure of deviations from the approved methodologies. The diversification factor assessment has been adjusted upward. In the Agency’s opinion, the increase of Herfindahl – Hirschman Index value is not related to a change in the Bank’s operating model, but results from the used practice of managing free liquidity and is not associated with lower creditworthiness.

The assigned credit rating is based on the data provided by ING BANK (EURASIA) JSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of ING BANK (EURASIA) JSC and the financial statements of ING BANK (EURASIA) JSC drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 08, 2018. The credit rating is solicited, and ING BANK (EURASIA) JSC participated in its assignment.

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

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

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