ACRA affirms AAA(RU) to “BNP PARIBAS Bank” JSC, outlook Stable

The credit rating of “BNP PARIBAS BANK” JSC (hereinafter, BNP Paribas, or the Bank) is based on the very high probability of extraordinary support from its parent company with high creditworthiness. The Bank’s high standalone creditworthiness assessment (SCA) stems from strong capital adequacy, a strong risk profile assessment, as well as an adequate liquidity and funding position and a medium business profile.

BNP Paribas ranked 101st in assets and 81st in capital among Russian banks as of December 1, 2019. BNP Paribas S.A. (hereinafter, BNP Paribas S.A., the Parent Bank, Supporting Organization, or SO) is the ultimate beneficiary of 100% of the Bank’s shares. BNP Paribas S.A. is the key entity in the BNP Paribas Group (hereinafter, the Group), one of the world’s largest banking groups with operations in over 70 countries.

Key rating assessment factors

Very high likelihood of extraordinary support from parent. In ACRA’s opinion, the Parent Bank (independently or through other entities of the Group) can provide BNP Paribas with sufficient long-term and short-term financing and capital injections, if needed. This opinion is based on the following factors:

  • Explicit operational integration between BNP Paribas and the SO (the Parent Bank defines corporate procedures and risk management standards that the Bank applies with due consideration given to Russian regulations);
  • BNP Paribas S.A. considers the Bank to be a strategically important asset emphasizing the vital role of the Bank’s clearing operations for ruble settlements;
  • BNP Paribas provides services to a number of other Group companies as well as to high-profile clients of the Group;
  • Representatives of the Parent Bank are members of the Bank’s Supervisory Board.

Given the above factors, the credit rating of the Bank is determined as on par with the Russian Federation.

Satisfactory business profile assessment. The business profile assessment is determined by the Bank’s strong franchise in servicing large Russian and multinational companies (MNCs) operating in the Russian Federation. Operating income diversification is low and is generated mostly by interest income from funds deposited with other banks (including the Bank of Russia). The Bank’s strategy involves cooperation with Russian and international companies and includes lending, derivative financial instrument transactions, cash management services, trade and export finance, etc. The corporate governance system is compliant with the requirements of the Parent Bank, which is the sole shareholder of BNP Paribas.

The strong capital adequacy assessment is supported by the Bank’s very high regulatory capital levels (N1.2 stood at 40.6% and N1.0 equaled 51.3% as of December 1, 2019). The final assessment of the Bank’s capital position is affected by relatively weak performance (the average CTI reached 67% and NIM stood at 3% in 2016–2018). At the same time, BNP Paribas has been continuously profitable: the average capital generation ratio has totaled at 70 bps for the last five years.

The Bank’s strong risk profile assessment is based on high asset quality beyond the loan portfolio and on adequate risk management quality. The loan portfolio was insignificant compared to the total amount of assets (less than ten borrowers) as of June 30, 2019. Based on the small size of the loan portfolio, the use of guarantees from the Parent Bank with respect to a number of claims, and the absence of non-performing assets, ACRA believes that the loan portfolio quality has no effect on the Bank’s risk profile. The Bank’s main assets are claims to the Parent Bank. The quality of counterparties in off-balance sheet liabilities is also assessed as high. The amount of market and operational risks that the Bank has taken have no effect on the final risk profile assessment. The Bank has an appropriate risk management system in place and the principles of its activities are in line with requirements set by both the Bank of Russia and BNP Paribas S.A.

The Bank’s strong liquidity position is primarily driven by the large amount of liquid assets as well as by a limited amount of debt to be refinanced in the near future. As a result, the figures of the short-term liquidity shortage indicator (STLSI) demonstrate that the Bank has a liquidity surplus of RUB 28 bln in the base case scenario, while surplus exceeds 30% of liabilities in the stress scenario. The long-term liquidity shortage indicator (LTLSI) of above 156% supports the Bank’s strong liquidity position. ACRA notes that BNP Paribas has a wide range of options at its disposal for raising additional liquidity including funds from the Bank of Russia and BNP Paribas S.A if necessary.

Concentrated funding profile. Funds of legal entities are the core of the Bank’s resource base: they amounted to around 80% of liabilities excluding subordinated debt as of June 30, 2019. At the same time, ACRA notes the high share of funds of the largest client (more than 30% of total liabilities). The above funding concentration results in a lower assessment.

Key assumptions

  • Maintaining the current business model focused on MNCs and Russian blue-chips;
  • Moderate growth of the loan portfolio;
  • SO maintaining shareholder and operational control.

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:

  • Reduced interest of BNP Paribas Group in developing business in the Russian Federation;
  • Substantial deterioration of the financial standing of the SO;
  • Reduced loan portfolio quality following its growth. 

Rating components

Standalone creditworthiness assessment (SCA): aa-.

Adjustments: none.

Support: on par with the 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 Registered 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 assigned to “BNP PARIBAS Bank” JSC was published by ACRA for the first time on January 23, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by “BNP PARIBAS Bank” JSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of “BNP PARIBAS Bank” JSC and BNP Paribas S.A., and the financial statements of “BNP PARIBAS Bank” JSC drawn up in compliance with Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit rating is solicited, and “BNP PARIBAS Bank” JSC participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by “BNP PARIBAS Bank” JSC in its financial statements have been discovered.

ACRA provided an additional service to “BNP PARIBAS Bank” JSC in the form of informational support (training session). No conflicts of interest were discovered in the course of credit rating assignment.

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