Training on Forecasting September 17–18

ACRA affirms AA(RU) rating of Bank GPB (JSC), outlook revised to Positive

The credit rating of Bank GPB (JSC) (hereinafter, Gazprombank or the Bank) is based on its strong and stable business profile, adequate capital position, satisfactory liquidity and funding positions, and satisfactory risk profile assessment. The rating is supported by Gazprombank’s critical systemic importance for the Russian financial market. The revised outlook reflects the improved asset quality, which, if such trend remains, may result in an upgrade of the credit rating.

Gazprombank is one of Russia’s largest universal financial institutions that specializes in lending and other banking services rendered to large businesses. The largest shareholders of the Bank are PJSC Gazprom and NPF GAZFOND.

Key rating assessment factors

Strong business profile of Gazprombank rests upon its sustainable franchise, primarily in the area of lending to large businesses. ACRA is of the opinion that one of the Gazprombank’s strongest competitive advantages is its close operational and strategic cooperation with PJSC Gazprom. The Bank is a banking industry leader in terms of capital and assets. Its business profile assessment is also supported by the high quality of its corporate governance and adequate development strategy.

Adequate capital adequacy assessment. Thanks to the capital increase implemented in 2017, Gazprombank has managed to maintain its Tier-1 and N1.2 capital adequacy ratios. The Agency notes that the Bank’s ability to generate new capital is low. The current loss absorption buffer enables Gazprombank to withstand a significant increase in the cost of risk and to maintain its N1.2 ratio within the regulatory requirements.

Neutral risk profile assessment. The Agency notes that the Bank’s asset quality has improved. The share of loans categorized as impaired under IFRS has declined from 24.1% to 17.7% within 12 months preceding June 30, 2017 (the share of NPL90+ amounted to 3.1% as of end-June 2017). The risk profile assessment remains limited by the increased amount specialized lending and direct investments, which exceeds the core capital.

Adequate liquidity management policy. The Bank’s liquidity position is assessed as sufficiently comfortable: under the ACRA base case and stress scenarios, the Bank can withstand a significant outflow of customer funds. According to ACRA estimates, the major repayments expected in the next 12-18 months will not impair the Bank’s liquidity. The current funding profile is concentrated on the largest lenders, of which the most significant is the Gazprom Group (over 15% of total liabilities as of end-1H2017). ACRA notes that the Bank’s relationships with the Group are stable and predictable.

The Agency notes that the Bank’s dependence on the corporate funds has grown: in 2017, the share of corporates has reached 60% of the total liabilities. In 2018, the Bank is expected to repay over RUB 100 billion under various bond issues. In ACRA’s opinion, the Bank will not experience any problems in repaying such amount.

Critical systemic importance of Gazprombank for the Russian financial market. In our opinion, a default of Gazprombank may lead to a systemic crisis within certain segments of the Russian banking market and a number of industrial sectors, which will have a negative impact on the financial stability of Russian economy. We should point out the critical importance of the Bank’s uninterrupted operations for PJSC Gazprom and a number of national economic leader companies. The Bank of Russia categorizes Gazprombank as a systemically important credit institution.

Key assumptions

  • Competitive positions in key business segments to remain strong;
  • Cost of credit risk within 1%;
  • Net interest margin within 2–3%;
  • N1.2 capital adequacy ratio above 8% within the 12 to 18-month horizon;
  • Moderate growth of diversification of loan portfolio and sources of income;
  • Funding structure to become more stable.

Potential outlook or rating change factors

The Positive outlook assumes possible rating upgrade within the 12 to 18-month horizon. ACRA may upgrade the standalone creditworthiness assessment (SCA) of the Bank in case the quality of assets is further improved amid stably adequate capital adequacy.

A positive rating action may be prompted by:

  • A material improvement of assets quality;
  • A growing capital generation capacity.

A negative rating action may be prompted by:

  • A material decline in the core capital adequacy as a result of a higher-than-capital growth of assets under risk or significant losses (increased cost of risk);
  • A growing dependence on corporate funding sources.

Rating components

 

Standalone creditworthiness assessment (SCA): a.

Adjustment: systemic importance, 3 notches up.

Support: no.

Issue ratings

October 30, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-17 series (RU000A0ZYEE5) — АА(RU)

September 25, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-24 series (RU000A0ZYB73) — AA(RU)

September 19, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-14 series (RU000A0ZYAE3) — AA(RU)

June 16, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-13 series (RU000A0JXTF6) — AA(RU)

April 24, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-16 series (RU000A0JXP45) — AA(RU)

February 28, 2017 — certified exchange-traded interest-bearing unregistered bond,
BO-23 series (RU000A0JXHQ8) — AA(RU)

December 07, 2016 — certified exchange-traded interest-bearing unregistered bond,
BO-12 series (RU000A0JX0P9) — AA(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 Bank GPB (JSC) on November 22, 2016.  The credit rating and its outlook were revised on November 20, 2017. The credit rating and its outlook are expected to be revised within 12 months following the rating action date (November 20, 2017).

The assigned credit rating is based on the data provided by Bank GPB (JSC), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of the Gazprombank Group and the statements of Bank GPB (JSC) drawn up in compliance with the Bank of Russia Ordinance No. 4212-U of November 24, 2016. The credit rating is solicited, and Bank GPB (JSC) participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by Bank GPB (JSC) in its financial statements have been discovered.

ACRA provided an additional service to Bank GPB (JSC) 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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