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, and adequate funding and liquidity assessments. The credit rating of the Bank also benefits from the high likelihood of extraordinary support from the Bank’s parent entity, ING Bank N.V. (hereinafter, the Supporting Organization, or SO).

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 2020. In Russia, the Bank has traditionally focused on blue-chip corporates and large financial institutions.

Key rating assessment factors

High likelihood of support from the Supporting Organization. ACRA’s opinion is based on the very strong ties between the Bank and the SO (due to the strategic importance of the Russian market for the ING Group), deep operational integration between the Bank and the SO, as well as on-demand, direct, and permanent support from the SO, including guarantees for some loans issued by the Bank and the credit lines.

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. According to 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 adequate business profile reflects its relatively high positions in the Russian banking system. As of June 1, 2020, the Bank ranked 29th in terms of capital and 32nd 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 Bank and the SO. At the same time, the Bank does not seek to expand geographically or in terms of new business niches significantly in the Russian Federation.

The Bank’s business diversification is quite low: as of year-end 2019, the Herfindahl-Hirschman Index used by ACRA to estimate operating income diversification stood at 0.43. 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 SO’s overall approach to developing markets, which is underlined by a very conservative risk-taking approach.

ACRA assesses the Bank’s capital adequacy as strong. Tier I capital as of end-March, 2020, stood at 23.2%, which, according to ACRA’s stress test, reflects the Bank’s ample capacity to absorb credit risks within the 12 to 18-month horizon. The average capital generation ratio calculated net of dividend payments for 2015−2019 is -14 bps, which is partially due to the impact of the group-wide KYC enhancement program on client onboarding and overall business processes.

The Bank’s risk profile is assessed as adequate as per the high quality of both the loan portfolio and the securities portfolio. According to the Bank’s IFRS financial statements, as of year-end 2020, the Bank had no impaired or overdue loans, which is typical for the Bank and reflects an adequate risk management policy that solely focuses on lending to companies with high credit quality. In assessing the risk profile, ACRA also took into account the high concentration of the loan portfolio on the largest groups of related borrowers. This, however, this is mitigated by the sufficient credit quality of these borrowers.

The adequate funding and liquidity assessment is driven by a sufficient surplus of short-term liquidity in both ACRA’s base case and stress scenarios, a stable position on long-term liquidity, and a lack of reliance on regulatory funding. The assessment is also supported by balances held at financial institutions with high creditworthiness and access to a significant amount of regulatory funding, if necessary. In addition, the Bank benefits from a substantial credit lines provided by the Supporting Organization. At the same time, ACRA acknowledges significant concentration on major depositors.

Key assumptions

  • Maintaining the current emphasis on a conservative development model and the high quality of the loan portfolio;
  • Capital adequacy ratio (N1.2) above 12% within the 12 to 18-month horizon;
  • Retained shareholding and operating control by the SO.

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:

  • Sudden deterioration of risk management prudence, substantial growth of NPLs in the loan portfolio;
  • Significant drop in capital adequacy metrics and internal capital generation capacity;
  • Substantial deterioration of the creditworthiness of the Supporting Organization.

Rating components

SCA: aa.

Adjustments: none.

Support: on par with the RF.

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 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.

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 8, 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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