ACRA assigns A-(RU) to JSC «Post Bank», outlook Stable

The A-(RU) credit rating assigned to JSC «Post Bank» (hereinafter, Post Bank, Bank) is due to the Company's satisfactory business profile, capital adequacy, risk profile, and funding and liquidity. The Bank's competitive advantage has been taken into account by adding one notch to the standalone creditworthiness assessment (SCA). In addition, ACRA has taken into account the likelihood of extraordinary support to the Bank from its beneficiaries, including PJSC VTB BANK (hereinafter, VTB Bank) and Russian Post (AAA(RU), outlook Stable; hereinafter, Russian Post, the Company), which is expressed in three notches up to the SCA.

Post Bank is a large Russian bank (22nd in terms of assets and 14th in terms of capital as of November 1, 2020), which business includes financial services to individuals. The main shareholders of the Bank are VTB Bank and Pochtovye Finansy LLC (a 100% subsidiary of Russian Post). Each shareholder holds  50% minus one share of the Bank. VTB Bank and Russian Post are controlled by the Russian Federation represented by the Federal Agency for State Property Management.

Key rating assessment factors

The Bank is highly likely to receive extraordinary support from shareholders in case of need. The Agency has taken into account the fact that Post Bank is jointly controlled by VTB Bank and Russian Post, as well as their ability and propensity to provide such support. The high likelihood of extraordinary support is determined by ACRA's assessment of the creditworthiness of VTB Bank and Russian Post, which, in the Agency's opinion, is strong.

The propensity of Russian Post to provide support to Post Bank is determined by the relatively strong negative reputational and economic effect that the Bank's default may have on Russian Post. In ACRA's opinion, the Bank is an important part of the development strategy of Russian Post, since it is intended to increase the economic return of postal services through the sale of a range of financial products. In addition, the Agency has taken into account the similarity of brands of the two entities, as well as an active involvement of Post Bank in salary projects of Russian Post, so that the Company is interested in uninterrupted operations of the Bank. The Agency also notes economic and reputational risks for VTB Bank in case of Post Bank's default, because VTB Bank possessed the shareholder control over the Bank and participated in the development of its strategy, and currently it participates in managing the Bank. Furthermore, VTB Group banks have granted to Post Bank a number of subordinated loans. These factors determine the propensity of VTB Bank to provide support if necessary. At the same time, given the lack of absolute shareholder control by each of the beneficiaries, the overall tightness of connections between them and the Bank is assessed by ACRA as moderate.

ACRA's opinion on the level of support from the controlling owners is expressed in three notches added to the Bank's SCA.

Satisfactory business profile (bbb-) is determined mostly by the strong position of Post Bank in the banking services market and the low diversification of its sources of operating income. Post Bank is one of the ten largest Russian banks in terms of loans granted to individuals and ranks 11th in terms of retail funds held on accounts. The Bank is a leader in the cash and POS loans market. The Bank's strategy is focused on financial services to individuals, while the bulk of the Bank's operations is carried out through the network of branches of Russian Post. The emphasis on transactions with individuals determines the low diversification of operating income (the Herfindahl–Hirschman index exceeds 0.41x). The Bank's development plans include increasing the volume of transactions with legal entities (mainly with SMEs), as well as expanding the product line for individuals. The Bank's development strategy is generally in line with the macroeconomic situation, which makes it possible to assess the strategy as satisfactory. The quality of management matches the scale and complexity of the Bank's operations. The ownership structure of Post Bank is assessed as transparent.

ACRA assesses the Bank's capital adequacy as satisfactory. As of November 1, 2020, the N1.2 ratio was 10.47%. ACRA has taken into account that over the last 12 months, this ratio was 9.3%, but it increased after a capital injection. The Agency expects the N1.2 ratio to show a moderate decline over the next 12 months. The Bank demonstrates a medium capacity to generate capital. For the period from January 1, 2016 to October 1, 2020, the average capital generation ratio (ACGR) amounted to 87 bps. The factor holding back the profitability of Post Bank's operations is a relatively high Cost-To-Income (CTI), which amounted to 55.3% over the past three years. The Net Interest Margin (NIM) reached 10% in this period. The current level of capitalization and the existing high coverage of bad debts by reserves allows Post Bank to withstand the increase in the cost of credit risk in the range of 300–500 bps, as confirmed by a stress test carried out in accordance with ACRA's methodology.

The Bank's risk profile is satisfactory, which is determined by a medium quality of the loan portfolio (77.5% of assets) and a high coverage. In addition, the focus of the Bank's strategy on unsecured lending has a negative impact on the risk profile. Stage 3 loans formed 10.7% of the portfolio as of September 30, 2020. The coverage of these loans by provisions was 96%, while the ratio of all provisions to Stage 3 loans exceeded 145%. A positive factor for the quality of the loan portfolio include its high granularity (the share of loans granted to the ten largest borrowers is less than 0.1% of loans). Receivables from financial institutions (13.4%) include funds held in the accounts of the Bank of Russia and VTB Bank. Taking into account the high level of automation in making loan decisions, ACRA assesses the quality of the Bank's risk management as satisfactory.

The position of Post Bank in funding and liquidity is satisfactory. ACRA notes that the Bank has a short-term liquidity shortage in both the base case and stress scenarios. There is also an imbalance of assets and liabilities by maturity (the long-term liquidity shortage indicator (LTLSI) is 55%). At the same time, the Agency takes into account that the Bank's resource base includes mainly current funds of retail clients, as well as relatively stable deposits, the amount of which does not exceed the insurance coverage offered by the Deposit Insurance Agency.

ACRA notes a high dependence of the Bank's resource base on retail accounts (over 90% of liabilities), which in turn determines a low dependence on funds from the largest creditors (depositors). The share of the largest depositor, VTB Bank, is 3.8% of liabilities, and the share of ten largest depositors is 4%.

The Agency has adjusted the Bank's SCA one notch up, taking into account the competitive advantage, i.e. the ability to offer services through the network of Russian Post branches. In 2020, more than 20 thousand Post Bank points of sale operated in Russian Post offices, which provides the Bank with access to a large base of potential customers and contributes to the growth of its geographical diversification.

Key assumptions

  • Maintaining the shareholding profile and the business model in the next 12–18 months;
  • N1.2 CAR above 8% in the next 12–18 months;
  • Maintaining the low concentration of the loan portfolio and client finds.

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:

  • Maintaining the capital adequacy ratios at their current levels;
  • Higher capital generation capacity;
  • Lower CTI.

A negative rating action may be prompted by:

  • Declining importance of the Bank for the key shareholders;
  • Declining granularity of the loan portfolio.

Rating components

SCA: bb+.

Adjustments: +1 notch to SCA for competitive advantage.

Support: +3 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 been assigned to JSC «Post Bank» 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 JSC «Post Bank», information from publicly available sources, and ACRA’s own databases. The rating analysis is based on the IFRS consolidated statements of JSC «Post Bank» and the financial statements of JSC «Post Bank» composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC «Post Bank» participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by JSC «Post Bank» in its financial statements have been discovered.

ACRA provided additional services to JSC «Post Bank». No conflicts of interest were discovered in the course of credit rating assignment.

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