ACRA affirms А(RU) to Tinkoff Bank, outlook Stable, А(RU) to ruble bonds, and BB+(RU) to subordinated Eurobonds

The credit rating of Tinkoff Bank (hereinafter, the Bank) reflects the Bank’s adequate business profile, strong capital adequacy, satisfactory risk profile, and adequate liquidity and funding position.

Tinkoff Bank is among the 20 largest Russian banks in terms of assets. The Bank’s main business lines are consumer lending to individuals, mainly through credit cards, and a wide range of financial services provided online. The Bank’s strategy involves developing a digital ecosystem that includes both banking and non-banking products. The Bank is part of TCS Group (the Group), a holding company registered in Cyprus.

Key rating assessment factors

The adequate business profile hinges on the Bank's strong franchise in unsecured consumer lending, which is confirmed by its strong position in the Russian credit card market. In addition, the Bank is continuing to develop other business lines, including brokerage services for individuals and sale of insurance products, which contributes to the diversification of its operating income. The Bank’s business profile assessment takes into account its business model, which is unique for the Russian banking market, as the Bank does not have branches or offices and performs all operations via its proprietary online platform in cooperation with a wide range of Russian partner banks.

In its assessment of the Bank's corporate governance, ACRA notes the ongoing changes in its management: in 2021, Oliver Hughes, the chairman of the Bank's executive board, became a member of the Group's board of directors. The Agency is of the opinion that the Bank continues to effectively manage its business processes at all levels. Moreover, in 2021, the group of shareholder companies whose ultimate beneficiary is Oleg Tinkov formally lost its control over the Bank after Class B voting shares were converted, following which the share of votes held by such companies in the Group decreased from 84.38% to 35.05%. At the same time, in ACRA's opinion, the current management structure does not indicate a change in the concentration of shareholder risks on the key owner. Therefore, the Bank's remains exposed to reputational risks caused by tax claims filed by the US Department of Justice against Oleg Tinkov. On the other hand, ACRA notes that such claims have an insignificant impact on the Bank’s day-to-day operations.

Capital adequacy is assessed as strong. As of March 1, 2021, N1.2 CAR was 12.15%. This allows the Bank to withstand an increase in credit risk of more than 500 bps. As of 2020-end, Tier 1 CAR was equal to 15.2%.

The Bank's capital adequacy is traditionally backed by sound profitability indicators: for 2016–2020, the averaged capital generation ratio (calculated taking into account dividends and other payments to shareholders) exceeds 300 bps.

The Bank’s profitability is based on historically high net interest margin (NIM), which has averaged 21% over the past three years due to high-yield unsecured loans and low costs of the resource base. CTI is 42.2% and tending to decrease.

The Bank’s satisfactory risk profile assessment reflects the adequate quality of risk management and the satisfactory base-case assessment of risk profile. At the end of 2020, IFRS Stage 3 loans accounted for 12.4% of the loan book. In addition, the Bank sold or wrote off its bad debts for the total of RUB 36.6 bln (4.8% of the portfolio). ACRA notes that after a slowdown in the growth of the portfolio in 2020 caused by a more conservative approach to loan issuances amid the pandemic, in 2021, the loan portfolio is tending to grow faster. The core of the portfolio is still formed by unsecured loans. At the same time, the Bank's focus on retail clients explains the low concentration of its liabilities.

The Bank’s adequate liquidity and funding position is a result of its stable short-term liquidity surplus and independence from regulatory funding. The Bank’s short-term liquidity position shows liquidity surplus even in the event of cash outflow from current and deposit accounts under the stress scenario. This is ensured by the Bank's substantial unencumbered portfolio of high-quality and liquid bonds. On the long-term horizon, there are no liquidity imbalances as well. ACRA notes the granularity of the Bank’s funding structure, with the share of retail clients exceeding 70% of liabilities at the end of 2020 (or about 70% exclusive of cash held on brokerage accounts).

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • Tier-1 CAR above 8% within the 12 to 18-month horizon.

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:

  • A sustainable growth of the loan book and a consistently low amount of overdue loans, taking into account the cyclicality of the consumer lending market;
  • A growth in the volume of the Bank's business leading to a higher importance of the Bank for the financial system of the Russian Federation.

A negative rating action may be prompted by:

  • A significant deterioration of the loan book quality followed by a pressure on the Bank’s income and capital;
  • Higher credit and operational risks due to changes in the Bank's shareholding and corporate governance arrangements;
  • Worse liquidity position of the Bank.

Rating components

SCA: a.

Adjustments: none.

Issue ratings

Certified non-convertible exchange-traded interest-bearing unregistered bond issued by Tinkoff Bank, 001P-01R series (ISIN RU000A0JXQ85), maturity date: April 22, 2022, issue volume: RUB 5 bln — A(RU).

Certified non-convertible exchange-traded interest-bearing unregistered bond issued by Tinkoff Bank, 001P-02R series (ISIN RU000A1008B1), maturity date: March 21, 2029, issue volume: RUB 10 bln — A(RU).

Certified non-convertible exchange-traded interest-bearing unregistered bond issued by Tinkoff Bank, 001P-03R series (ISIN RU000A100V79), maturity date: September 12, 2029, issue volume: RUB 10 bln — A(RU).

Rationale. The issues represent senior unsecured debt of Tinkoff Bank. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Bank in terms of priority. According to ACRA’s methodology, the credit ratings of the issues are equivalent to that of Tinkoff Bank, i.e. A(RU).

Tinkoff Bank Subordinated Perpetual Eurobonds (ISIN XS1631338495), issue volume: USD 300 mln — BB+(RU). Tinkoff Bank acts as a guarantor for any liabilities of TCS Finance D.A.C. in the issue.

Rationale. TCS Finance D.A.C., an Irish designated activity company, issued the USD 300 mln perpetual bonds and transferred all issue proceeds to Tinkoff Bank in the form of a subordinated loan. The issue implies a significant subordination to priority unsecured creditors and the right of Tinkoff Bank to cancel, at its discretion, coupon payments with the creditors having no right to claim unpaid interest. The issue terms and conditions provide for a full write-off of the loan in the event the Common Equity Tier 1 Ratio goes down below 5.125% or if the Deposit Insurance Agency institutes a bankruptcy prevention procedure. In accordance with the relevant ACRA methodology, the final credit rating for the issue of this type is set five notches below the Tinkoff Bank’s SCA (a).

Regulatory disclosure

The credit ratings of Tinkoff Bank, bonds (RU000A0JXQ85, RU000A1008B1, RU000A100V79) issued by Tinkoff Bank and subordinated perpetual Eurobonds (XS1631338495) issued by Tinkoff Bank were 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 and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale of the Russian Federation was also used in the credit rating process.

The credit ratings of Tinkoff Bank, bonds (RU000A0JXQ85, RU000A1008B1, RU000A100V79) issued by Tinkoff Bank, and subordinated perpetual Eurobonds (ISIN XS1631338495) issued by Tinkoff Bank were first published by ACRA on May 19, 2017, May 25, 2017, April 3, 2019, September 25, 2019, and June 23, 2017, respectively. The credit rating of Tinkoff Bank and its outlook as well as the credit ratings of the above bonds are expected to be revised within one year following the publication date of this press release.

The credit ratings were assigned based on the data provided by Tinkoff Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of TCS Group Holding PLC (the main portion of its assets pertains to Tinkoff Bank) and statements of Tinkoff Bank composed in compliance with the Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit ratings are solicited, and Tinkoff Bank participated in their assignment.

In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to Tinkoff Bank. No conflicts of interest were discovered in the course of credit rating process.

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