ACRA affirms AAA(RU) to CB “J.P. Morgan Bank International” (LLC), outlook Stable

The credit rating of CB “J.P. Morgan Bank International” (LLC) (hereinafter, the Bank) is based on the very high probability of extraordinary support from the Bank’s parent company, which has a high level of creditworthiness. The Bank has a very strong standalone creditworthiness assessment (SCA), which stems from its adequate business profile, strong capital adequacy and risk profile assessment, and adequate funding and liquidity position.

The Bank is a credit organization ranked 99th in terms of total assets and 37th in terms of capital among banks operating in the Russian Federation as of October 1, 2020. The Bank is wholly owned by JPMorgan Chase & Co. (hereinafter, the Supporting Organization), one of the largest global financial organizations based in the United States.

Key rating assessment factors

Very high probability of extraordinary support from the Supporting Organization. In ACRA’s opinion, the Supporting Organization can, if necessary, provide the Bank with sufficient short and long-term financing either individually or via other Supporting Organization subsidiaries. It can also increase the Bank’s capital, subject to regulatory approval. The final assessment of the respective country risks for jurisdictions of the foreign Supporting Institution (the US and others) relative to Russia's country risk and the final creditworthiness assessment of the Supporting Organization are determined by ACRA as strong.

ACRA assesses the level of connection between the Bank and the Supporting Organization as strong due to the following factors:

  • The Supporting Organization considers the Bank to be a strategically important asset, noting the importance of its historic operations with Russian clients, including major national corporations;
  • Pronounced operational integration between the Bank and the Supporting Organization (the Supporting Organization determines corporate processes used by the Bank while taking into account the requirements of Russian legislation);
  • The Bank’s Board of Directors is composed primarily of representatives of the Supporting Organization’s subsidiaries.

The Bank’s adequate business profile assessment is driven mainly by the fact that the Bank is a subsidiary of JPMorgan Chase & Co., the largest global financial corporation, and the Bank’s consistent strategy in the local market. The Bank’s operations are underlined by their sole focus on Multinational Corporations (MNCs) operating in Russia and local blue-chip entities. However, ACRA notes the limited market positions in the Russian market, absence of a direct lending business, and moderate diversification of operating income, which is made up primarily of fees and commissions income from investment and corporate banking operations. The Bank offers commercial and investment banking services that include a variety of money market transactions, treasury, FX operations, securities and derivatives trading, as well as trade finance and custodian banking. The Bank does not offer loans to legal entities and does not service retail customers. The corporate management system of the Bank is in line with the Supporting Organization’s global business standards.

The strong capital adequacy assessment is driven by the substantial loss absorption cushion stemming from the very high level of the Bank’s core capital according to regulatory norms (N1.2 at 90.8% as of October 1, 2020) and the absence of non-performing assets due to the Bank’s business model. In addition, the Bank remains profitable. The average capital generation ratio (ACGR) stood at 421 bps for 2015−2019. ACRA notes the Bank’s improving operating efficiency (the average CTI for 2017−2019 was approximately 54% from 72% in 2016−2018). The Bank does not make dividend payments or direct net profits to increase capital.

ACRA assesses the Bank’s risk profile as strong taking into account the high quality of its assets outside of the debt portfolio. The Bank does not conduct lending to legal entities or individuals and therefore, the Supporting Organization’s liabilities on the funds placed in its accounts by the Bank are made up primarily of risk-weighted assets (RWA). ACRA simultaneously assesses the quality of counterparties on off-balance sheet liabilities and derivative financial transactions as high. The Bank’s risk management is largely implemented at the level of the Supporting Organization.

ACRA assesses the Bank’s funding and liquidity position as adequate, as funds placed in the accounts of the Supporting Organization (previously raised as a contribution to authorized capital) allow the Bank to cover all liabilities to third-party creditors (depositors). The Bank’s very high level of capital and highly liquid assets, coupled with the lack of pressure to refinance debt, result in very high long-term and short-term excess liquidity levels. The short-term liquidity shortage indicator (STLSI) and long-term liquidity shortage indicator (LTLSI) stood at 336% and 563%, respectively, as of end-June 2020.

Key assumptions

  • Supporting Organization maintaining majority shareholder status and operational control;
  • Maintaining historic business model in the Russian market, especially the focus on MNCs and Russian blue-chip entities;
  • Maintaining profitability levels;
  • Maintaining high capital adequacy and liquidity levels.

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:

  • Decreased importance in the Russian market and relevance to the Supporting Organization’s overall business model and strategy;
  • Supporting Organization’s decreased interest in developing business in the Russian Federation;
  • Deterioration of the Supporting Organization’s financial condition.

Rating components

SCA: aa-.

Adjustments: none.

Support: on par with the RF.

Issue ratings

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 assigned to CB “J.P. Morgan Bank International” (LLC) was published by ACRA for the first time on December 6, 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 CB “J.P. Morgan Bank International” (LLC), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of CB “J.P. Morgan Bank International” (LLC) and the financial statements of CB “J.P. Morgan Bank International” (LLC) drawn up in compliance with Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit rating is solicited, and CB “J.P. Morgan Bank International” (LLC) participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by CB “J.P. Morgan Bank International” (LLC) in its financial statements have been discovered.

ACRA provided no additional services to CB “J.P. Morgan Bank International” (LLC). No conflicts of interest were discovered in the course of credit rating assignment.

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