ACRA affirms AA(RU) to JSC “ALFA-BANK,” outlook remains Stable

The credit rating of JSC “ALFA-BANK” (hereinafter, the Bank) is based on its strong business profile, adequate capital reserves, satisfactory risk profile and adequate liquidity and funding position. The rating is further supported by the Bank’s moderate systemic importance for the Russian financial market.

The Bank is a universal nation-wide bank focusing on lending to large- and medium-sized businesses and individuals and on transactional services to businesses and individuals. As of October 01, 2017, the Bank was the largest private bank in terms of assets, capital and portfolio of deposits. The Bank is a part of ABH Financial Limited Group (the Group).

Key rating assessment factors

Strong business profile assessment. The Bank benefits on its strong franchise, primarily in lending and transactional services provided to businesses and individuals, and moderate diversification of operating income. High quality corporate governance and adequate development strategy are also positive for the rating assessment.

Adequate loss absorption cushion. The regulatory capital adequacy ratio (as of October 01, 2017, N1.2 equaled 8.7%) is combined with a strong capital generation capacity (100–150 bps) by both the Bank and the entire Group, which allows the Bank to withstand the cost of risk increase of 300-400 bps while maintain the common capital adequacy ratio at not less than 6%. The assessment takes into account high susceptibility of financial performance to currency asset revaluation.

Satisfactory risk profile assessment. In the last 12 months, the quality of loan portfolio has improved: the share of NPL90+ declined from 6.3% (as of July 01, 2016) to 2.8%, and the share of potentially problem loans (in terms of ACRA methodology) equaled to 6.0-6.5% (on the basis of the analysis of top 50 groups of borrowers). ACRA notes the high growth rate of the loan portfolio (+18% in 12 months preceding July 01, 2017), mostly in the retail segment, as well as a stably high share of non-collateralized loans (which is counter-balanced by the dominating role the largest corporates with high credit quality play among other borrowers). The assessment also includes a high susceptibility of the financial performance (under the Russian reporting standards) to foreign currency revaluation of assets.

Adequate liquidity position. Under the ACRA base case scenario, the Bank can withstand an outflow of customer funds with a moderate margin, due to a high share of current accounts in the portfolio of liabilities (46.7% of customer funds). Under the stress scenario, liquidity deficit is at the average market level. A substantial undrawn limit of funds from the Bank of Russia is available to the Bank under Regulation 312-P (in late September, the limit was equal to USD 2.6 bln). The long-term liquidity position is assessed as strong, as LTLSI exceeded 70% in early September 2017).

The funding structure is well-balanced due to an adequate diversification by funding source (the share of individuals’ funds was 37.7% as of July 1, 2017) and lender (the share of the largest lender was 3.8% and the share of top 10 lender was 14.3% of liabilities).

Moderate systemic importance. In our opinion, in case the Bank defaults, this may lead to a systemic crisis in certain segments of the Russian banking market and, consequently, may have a significant negative impact on the Russian financial sector and entire economy. The Bank is on the Bank of Russia’s list of systemically important credit institutions.

Key assumptions

  • Maintaining strong competitive positions in key business segments;
  • Loan portfolio growth rate within 15-20%;
  • Cost of credit risk within 0.7-1.2%;
  • Net interest margin in the range of 4.3-4.5%;
  • Tier-1 capital adequacy (N1.2) is above 8% within the 12 to 18-month horizon;
  • Maintaining the current funding structure.

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 material decline of the share of problem loans in the loan portfolio;
  • A substantial growth of the share of collateralized lending.

A negative rating action may be prompted by:

  • A significant deterioration of the Alfa-Bank's regulatory capital adequacy as a result of risk cost increase or aggressive dividend policy;
  • Deterioration of the liquidity position related to a thinning highly liquid asset cushion on the Alfa-Bank's balance;
  • Deterioration of competitive positions in key business segments as a result of further consolidation of the banking sector.

Rating components

Standalone creditworthiness assessment (SCA): a+.

Adjustments: systemic importance, 2 notches up.

Support: none. 

Issue ratings

December 9, 2016 — subordinated perpetual Eurobond (XS1513741311) — BBB-(RU)

January 24, 2017 — certified exchange-traded interest-bearing registered bond, series BO-18 (RU000A0JX5W4) — АА(RU)

February 17, 2017 — Eurobond (XS1567117566) — АА(RU)

May 31, 2017 — certified exchange-traded interest-bearing registered bond, series
BO-20 (RU000A0JXRV7) — АА(RU)

July 24, 2017 — Eurobond (XS1648266788) — АА(RU)

October 2, 2017 — certified exchange-traded interest-bearing registered bond, series BO-21 (RU000A0ZYBM4) — АА(RU) 

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is 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 credit rating was first assigned to JSC “ALFA-BANK” on November 11, 2016. The credit rating and credit rating outlook were revised on November 09, 2017. The credit rating and its outlook are expected to be revised within 12 months following the rating action date (November 09, 2017).

The assigned credit rating is based on the data provided by JSC “ALFA-BANK”, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of ABH Financial Limited Group, IFRS consolidated statements of JSC “ALFA-BANK” and statements of JSC “ALFA-BANK” composed in compliance with the Bank of Russia Ordinance No. 2332-U. The credit rating is solicited and JSC “ALFA-BANK” participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by JSC “ALFA-BANK” in its financial statements have been discovered.

ACRA provided additional service to JSC “ALFA-BANK” in the form of informational support (a practical seminar). No conflicts of interest were discovered in the course of credit rating assignment. 

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