ACRA assigns AA(RU) to EXIMBANK OF RUSSIA, outlook Stable

The credit rating has been assigned to EXIMBANK OF RUSSIA (hereinafter, EXIMBANK, or the Bank) in view of the high likelihood of support to the Bank from the State Development Corporation "VEB.RF" (rated by ACRA at ААА(RU), outlook Stable; hereinafter, VEB.RF, or the Supporting Organization), as well as the Bank's satisfactory business profile, strong capital adequacy, satisfactory risk profile, and adequate funding and liquidity assessment.

EXIMBANK is a medium-sized, in terms of equity, Russian bank that ranked 35th as of November 1, 2020. Being a part of the state institution for support of non-commodity exports, the Bank offers lending and guarantee services for Russian exporters, foreign counterparties and credit institutions.

Key rating assessment factors

The high likelihood of extraordinary support is based on VEB.RF's total shareholding and operating control over the Bank exercised through Russian Export Center JSC (REC). EXIMBANK is a member of the REC Group, which is authorized by the government to provide financial, insurance, guarantee and other support to exporters.

ACRA is of the opinion that, if necessary, the Supporting Organization will be willing and able to provide the Bank with short-term and long-term funding and capital injections in view of the following:

  • The Bank is highly important for REC and deeply integrated into the REC Group's export supporting operations;
  • High reputational and financial risks for the Supporting Organization were the Bank to go bankrupt;
  • Multiple cases of equity and financial support from the shareholders. Most client funds are those held with the Bank by the companies of VEB.RF group;
  • Over 60% of the corporate portfolio and the majority of inter-bank loans are insured by EXIAR, and 7% of loans granted by the Bank to corporates are guaranteed by the Russian Government.

Therefore, the degree of integration between the Bank and the Supporting Organization is assessed by the Agency as strong.

The satisfactory business profile reflects the Bank's business specifics and the role it plays in the economy. The focus on corporate lending results in the low diversification of operating income (the Herfindahl-Hirschman index is 0.37x). The top priorities of the Bank's strategy for the period up to 2024 include an increase in financing for exporters and foreign buyers of Russian products and the sustainable profitability. The main assumptions laid down by the Bank in its strategy, as well as the results of strategy implementation in previous periods, are assessed by ACRA as adequate. The Bank demonstrates a high transparency of its shareholding structure and a high degree of shareholder control over the Bank's corporate governance system, which generally corresponds to the scale and specifics of its operations.

The strong capital adequacy is based on the Bank's high capitalization, which is a result of increases in its authorized capital in 2015–2016. As of November 1, 2020, the N1.2 CAR amounted to 18.8%. Thanks to its loss absorption buffer, the Bank is able to withstand an increase in the cost of risk exceeding 500 bps, without a breach of minimal regulatory ratios. In the next 12–18 months, ACRA does not expect a significant decrease in capital adequacy ratios, notwithstanding the planned expansion of lending volume. The Bank has a high capital generation capacity, as the average capital generation ratio for the last five years exceeds 100 bps. The net interest margin calculated for the last three years is high (4.5%). It is worth noting that a substantial share of interest income is income from government subsidies.

The risk profile is assessed as satisfactory. The volume of loans categorized by ACRA as problem is moderate (about 6.5% as of July 1, 2020). Due to the Bank's business specifics, the concentration of exposures in the loan portfolio is rather high (as of mid-2020, the share of top 10 groups of borrowers slightly exceeded 60%). According to ACRA's estimated, this share will gradually decline with the increase in the volume of loans granted by the Bank. EXIMBANK has plans to aggressively increase the scope of lending, which, however, should not result in a significant increase in exposures, because the majority of loans issued by the Bank are guaranteed by EXIAR and the Russian Government.

Most of the loans issued by EXIMBANK to banks are granted to non-residents, as part of the Bank's export credit business. Risks related to such loans are minimized mainly by insurance coverage from EXIAR. The general quality of borrowers of such loans is acceptable, however, the financial condition of some institutions significantly deteriorated in H1 2020.

The Bank's portfolio of investments in securities shows no increased risks. The market and operational risks are acceptable.

The adequate funding and liquidity position is based on a high volume of liquid assets, and therefore the Bank has a short-term liquidity surplus in both base case and stress scenarios of ACRA. There is no imbalance of assets and liabilities over a longer period: the long-term liquidity shortage indicator amounted to 97% as of July 1, 2020. The Bank's funding base is concentrated on the largest group of creditors (over 30% of the Bank's liabilities) and on ten largest groups of creditors (over 40%), which is due to the high concentration of the Bank's funding on non-volatile funds of the REC Group. ACRA does not expect any changes in the Bank's funding profile in the next 12–18 months.

Key assumptions

  • Maintaining the shareholding profile and the business model in the next 12–18 months;
  • N1.2 CAR not lower than 12% in the next 12–18 months.

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:

  • Better quality and higher granularity of the loan portfolio, sustainably high capitalization, and at least current level of liquidity;

A negative rating action may be prompted by:

  • Declining importance of the Bank for the Supporting Organization;
  • Declining quality of assets;
  • Substantially declining capital adequacy ratios and worsening short-term liquidity position.

Rating components

SCA: а-.

Adjustments: none.

Support: +4 notches to SCA.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is based on Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships Within Corporate Groups, as well as the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating has assigned to EXIMBANK OF RUSSIA for the first time. The credit rating and its outlook are expected to be within one year following the publication date of this press release.

The credit rating is based on the data provided by EXIMBANK OF RUSSIA, information from publicly available sources, and ACRA’s own databases. The rating analysis is based on the IFRS consolidated statements of EXIMBANK OF RUSSIA and financial statements of EXIMBANK OF RUSSIA composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and EXIMBANK OF RUSSIA participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by EXIMBANK OF RUSSIA in its financial statements have been discovered.

ACRA provided additional services to EXIMBANK OF RUSSIA. No conflicts of interest were discovered in the course of credit rating assignment.

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