ACRA affirms AAA(RU) to OOO HSBC Bank (RR), outlook Stable

The credit rating of OOO HSBC Bank (RR) (hereinafter, the Bank) stems from the very high likelihood of extraordinary support from the controlling owner, HSBC Holdings plc based in the UK (hereinafter, the Supporting Organization). The Bank's standalone creditworthiness assessment (SCA) is high and is based on its strong business profile, substantial capital reserves, adequate risk profile, and adequate funding and liquidity position.

The Bank provides integrated banking services, including lending, guarantees and letters of credit, trade finance, treasury services, to major Russian businesses and subsidiaries of Multinational Corporates (MNCs). As of end-June 2020, the Bank ranked 75st in equity and 78th in assets among Russian banks. The Bank is wholly owned by HSBC Europe BV, which is registered in the Netherlands. The beneficial owner of the Bank is HSBC Holdings plc, a diversified global banking group.

Key rating assessment factors

Very high likelihood of extraordinary support from the shareholder. In ACRA's opinion, in case of need the Supporting Organization may provide the Bank with long-term and short-term financing and inject capital (currently, the amount of capital available to the Bank is excessive). The relationship between the Bank and the Supporting Organization is assessed by ACRA as very strong in view of the following:

  • The Supporting Organization holds 100% equity share in the Bank;
  • The Supporting Organization implements its Russian corporate business strategy through the Bank;
  • High importance of the Russian market for the Supporting Organization;
  • Significant operational integration between the Bank and the Supporting Organization in terms of corporate governance, strategy and risk management;
  • HSBC Bank plc, UK, that owns the 100% share in HSBC Europe BV, acts as a guarantor for a range of loans issued by the Bank.

Taking into account the Bank's size compared to the size of the Supporting Organization and possible reputational risk that the Supporting Organization may suffer in case the Bank fails to honor any of its obligations, the resulting rating of the Bank is determined at the highest level of the national scale at AAA(RU).

The Strong business profile is determined by the Bank's competitive positions (taking into account, among other things, intra-group transactions) in servicing the largest Russian companies and multinational corporations that have business activities in the Russian market, as well as developed business in financial markets (dealer and brokerage services, trading operations). The scale of the group's business in Russia exceeds the assets of the Bank, as part of the credit risks are accounted for on the balance sheet of the parent bank.

The operating income diversification is high (the Herfindahl-Hirschman index was 0.16 for 2019), with the prevalence of income from interbank operations, commercial lending to companies, and derivatives. The corporate governance and strategic planning system of the Bank is assessed as high.

Strong Capital Adequacy. The Bank maintains consistently high capital adequacy ratios (the N1.2 ratio was 27.7% as of end-June, 2020), which allows the Bank to sustain a significant increase in the cost of credit risk (well over 500 bps) resulting in a probability of the stress scenario that is assessed by ACRA as very low. The Bank demonstrates good operating efficiency metrics (NIM at 3.6% and CTI at 56.5% in 2017–2019) and profitability (average capital generation ratio for 2015−2019 stood at 44 bps, as calculated by ACRA).

Adequate risk profile. The risk management of the Bank is transparent, adequately regulated and characterized by high underwriting standards and significant control by the Supporting Organization. The basis of the loan portfolio mostly consists of loans granted to subsidiaries of multinational corporations with high credit quality. ACRA notes that a substantial part of the loan portfolio is secured by the guarantees issued by the parent bank. The portfolio of securities is represented mainly by investments in Federal Loan Bonds, and the portfolio of loans to banks includes mainly intra-group transactions. Despite high asset quality, ACRA notes the high level of concentration on a small number of borrowers as well as higher than typical levels of market risk. ACRA notes that the loan portfolio does not exceed 20% of the Bank’s total assets. An increase in this indicator may lead to a change in the risk profile assessment.

Adequate liquidity and funding positions. The Bank’s balance sheet consists mostly of high quality liquid assets. The Bank does not have a large amount of maturing issued debt, which results in a positive short-term liquidity shortage indicator with a significant margin in both ACRA’s base case and stress scenarios. The long-term liquidity shortage indicator exceeds 100%. The Bank’s liabilities (excluding derivatives) include corporate funds (92%) and interbank loans (8%), mainly intra-group transactions. ACRA assesses as positive the predominantly stable nature and predictable dynamics of balances on accounts and deposits of large corporate creditors. ACRA also notes the high level of funding source concentration, which is in line with the Bank’s business model in Russia.

Key assumptions

  • Maintaining the current business model;
  • N1.2 above 12% within 12 to 18-month horizon;
  • Maintaining NIM levels;
  • Current funding profile remaining largely unaltered.

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 importance of the Russian market for the Supporting Organization,
  • Substantial deterioration of the financial standing of the Supporting Organization.

Rating components

SCA: aa.

Adjustments: none.

Support: SCA +5.

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 outside the Russian Federation, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of OOO HSBC Bank (RR) was first published by ACRA on September 7, 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 OOO HSBC Bank (RR), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of OOO HSBC Bank (RR) and the financial statements of OOO HSBC Bank (RR) drawn up in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and OOO HSBC Bank (RR) participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by OOO HSBC Bank (RR) in its financial statements have been discovered.

ACRA provided no additional services to OOO HSBC Bank (RR). No conflicts of interest were discovered in the course of credit rating assignment.

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