ACRA affirms BBB-(RU) to PJSC BANK URALSIB, outlook Stable

The credit rating assigned to PJSC BANK URALSIB (hereinafter, URALSIB, or the Bank) is based on the adequate capital adequacy assessment, weak risk profile, and adequate funding and liquidity position, which corresponds to the Bank’s status (since November 2015, the Bank has been undergoing a financial rehabilitation procedure) and satisfactory business profile assessment.

URALSIB is a universal bank that ranks 26th in terms of capital among Russian banks; the Bank is present in all federal districts of Russia, with dominant positions in Moscow. The Bank’s controlling shareholder and executor of the rehabilitation procedure is Lyudmila Kogan (81.8% stake). An 11.4% stake is held by Nikolay Tsvetkov, the controlling owner of URALSIB until November 2015.

Key rating assessment factors

Satisfactory business profile. The universal nature of the Bank’s activities defines its consistently highly diversified operating income (the Herfindahl-Hirschman Index stood at 0.19 in 2019). The corporate governance assessment is positively affected by regulatory control over the Bank as an institution undergoing financial rehabilitation by the Bank of Russia and SC “Deposit Insurance Agency” (DIA). ACRA assesses the quality of corporate governance of the Bank as equal to its Russian peers with a similar scope of operations. However, the rapid (slower than the market average) growth of the retail loan portfolio continues to limit the assessment of the business profile.

The adequate assessment of the Bank’s financial strength in terms of capital is based on acceptable capital adequacy by national standards (N1.2 at 8.8% and N1.0 at 9.7% as of June 1, 2020), which allows URALSIB to absorb a moderate increase in the cost of risk by around 320 bps without receiving financial support from its shareholders. At the same time, the Bank’s ability to generate capital is assessed as high (the average capital generation ratio, or ACGR, totaled around 200 bps for 2016–2019). The Bank’s operating efficiency is average: the cost-to-income (CTI) ratio has amounted to around 61% over the past three years, while the net interest margin (NIM) for the same period was 5.4%.

The Bank’s low risk profile assessment is based on the increased level of problem and potentially problem loans — 17% of the portfolio as of March 31, 2020, including NPL90+ at 7.4%, involuntarily restructured loans at 3.3%, and potentially problem loans at 6.3% (based on the analysis of the loan portfolio for the 30 largest groups of borrowers). At the same time, the loan portfolio concentration on the 10 largest groups of borrowers (22% of the portfolio including loans to related parties) and high-risk industries (construction and real estate sector) is assessed by ACRA as moderate. Claims (primarily loans) and contingent liabilities with related parties amount to around half of IFRS Tier-1 capital.

The credit quality of the securities portfolio (29% of assets as of March 31, 2020), which mostly includes corporate bonds and Eurobonds, is assessed as acceptable. At the same time, the trading portfolio’s share in the overall portfolio has increased from 10% to 38.5% in the past 12 months, which has led to fivefold growth in risk-weighted assets in terms of market risk (as of March 31, 2020). However, this risk is still assessed as moderate, including due to the regular reduction of the duration of the securities portfolio.

Investments in non-core assets did not exceed 10% of IFRS Tier-1 capital as of March 31, 2020 and include investment property and a share in the charter capital of a limited liability company.

The adequate liquidity cushion of the Bank is primarily attributable to the long-term placement of funds raised from the DIA as part of the financial rehabilitation procedure into highly-liquid bonds. Therefore, in the base case scenario, the short-term liquidity surplus amounted to RUB 80 bln, and 3.2% of liabilities in the stress scenario. In addition, the average short-term liquidity ratio (STLR) has been around 110% since the start of 2020. In terms of longer-term liquidity, ACRA notes no considerable imbalances: as of March 31, 2020, the long-term liquidity ratio (LTLR) was assessed as adequate at around 81%.

Well-balanced funding profile. The share of the largest funding source (individuals and individual entrepreneurs) in the Bank’s total liabilities was 44% as of March 31, 2020, which is assessed as moderate. The concentration of the resource base on the largest lender (10% of liabilities) and the 10 largest client groups (15% of liabilities) is not high. No substantial outflows of funds are expected within the 12-month horizon.

Key assumptions

  • Implementation of financial rehabilitation measures as planned;
  • Maintaining the current business model;
  • Maintaining NIM at around 5%;

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 positive rating action may be prompted by:

  • Stable growth in capital adequacy according to national standards with audited confirmation of Tier-1 and CAR;
  • Lower level of problem loans;
  • Significantly improved operating efficiency.

A negative rating action may be prompted by:

  • Lower capital adequacy ratio (N1.2), including as a result of increased cost of risk;
  • Aggressive growth of the loan portfolio and/or a significant increase in the share of problems loans;
  • Increase of related parties lending;
  • Increase in accepted market risks;
  • Increase in non-core assets on the Bank’s balance sheet;
  • Deteriorating liquidity and funding position.

Rating components

SCA: bbb-.

Adjustments: none.

Support: none.

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

The credit rating of PJSC BANK URALSIB was published by ACRA for the first time on July 24, 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 PJSC BANK URALSIB, information from publicly available sources, as well as ACRA’s own databases. The rating analysis is based on the consolidated IFRS financial statements of PJSC BANK URALSIB, non-audited statements of PJSC BANK URALSIB (with regard to capital adequacy ratios under IFRS), and financial statements of PJSC BANK URALSIB composed in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and PJSC BANK URALSIB participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by PJSC BANK URALSIB in its financial statements have been discovered.

ACRA provided additional services to PJSC BANK URALSIB. No conflicts of interest were discovered in the course of credit rating assignment.

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