ACRA assigns AAA(RU) to LLC VW Bank RUS, outlook Stable

The credit rating assigned to LLC VW Bank RUS (the Bank) is based on the very high likelihood of extraordinary support from the Volkswagen group (the Group), a parent group with high creditworthiness. The Bank's standalone creditworthiness assessment (SCA) is relatively high, in view of its strong capital adequacy, strong risk profile, adequate liquidity and funding, and satisfactory business profile.

The Bank ranks 118th in terms of assets and 70th in terms of equity among Russian banks. The Bank's shareholders include Volkswagen Financial Services AG (99%) and Volkswagen Bank GmbH (1%).

The main business line includes retail car loans for autos made by the Volkswagen group and sold through authorized dealers. The Bank has no branch network.

Key rating assessment factors

Very high likelihood of extraordinary support from the key shareholder. ACRA is of the opinion that, in case of need, the Group will provide, through Volkswagen Financial Services AG (the Supporting Organization), the Bank with short-term and long-term funding and capital injections. ACRA assesses the country risk of the Supporting Organization's jurisdiction (Germany) against the country risk of Russia as strong. The Supporting Organization's creditworthiness is determined by ACRA as moderately strong.

The degree of integration between the Bank and its key shareholder is assessed as very strong in view of the following:

  • Importance of the Russian market for the Group;
  • Possible reputational risks in case of bankruptcy of the Bank;
  • High operational integration between the Bank and the Group companies;
  • The Supporting Organization's propensity to support the Bank with liquidity and capital injections.

In view of the above, ACRA added 5 notches up to the Bank’s SCA.

Satisfactory business profile. The Bank’s business profile assessment is mainly determined by low market positions and weak diversification of operating income (the HHI is 0.75) on the back of the strong assessment of the strategy and corporate governance. The ownership profile of the Bank is transparent.

The Bank's strategy is aimed at maintaining the Russian sales of cars made by the Volkswagen group. Currently, the Bank grants loans mostly to individuals. The Group's auto products cover all price segments, which enhances the diversification of credit risks and supports the profitability of the Bank.

Substantial loss absorption buffer is supported by the stably high capital adequacy ratio (N1.2 was 42.9% as of January 01, 2018). Moreover, the Bank is able to withstand a substantial increase of credit risk (by over 500 bps).

The Bank’s returns are stably high, as the average capital generation ratio (ACGR) is 202 bps for the period from 2013 to 2017. The operating effectiveness of the Bank is assessed as high: in 2015–2017, the average NIM is 8.0% and CTI is 49.0%. The current dividend strategy of the parent company provides for no dividend payments.

Strong risk profile assessment stems from the high quality loan portfolio and the quality risk management system (modern risk management methods are applied, and reviewed and updated regularly), highly skilled personnel, and deep integration of the risk function into the Group's structure. The Bank's loan portfolio includes retail car loans (82.8% of the portfolio) and loans granted to Russian companies within the Volkswagen group (17.1% of the portfolio). The share of non-performing and potentially non-performing loans is 3.1% (of which 2.8% are NPL90+). The Bank's loan portfolio is characterized by low concentration of the top 10 borrower groups (17.2% of the portfolio), which is typical for banks focused on car loans.

The loan portfolio is almost 100% collateralized. The loan portfolio growth rate amounted to 19.1% for the last 12 months, i.e. on par with peers. The growth is organic, driven by market, and causes no additional risks for the Bank. The Bank holds no investments in securities. The Bank's counterparties on the interbank market are high-reputable banks. The operating risk and the concentration on the largest client groups are acceptable.

Strong liquidity position is primarily due to the high volume of liquid and high-liquid assets, as well as a limited amount of liabilities expected to be repaid within the next three months. In the base case scenario, the STLSI is positive, and in the stress scenario, liquidity surplus exceeds 17% of liabilities. Long-term position is also assessed as strong: the LTLSI is 98%.

Satisfactory funding profile. The Bank’s funding base hinges on bond proceeds, the interbank market loans, and funds of the Volkswagen group client companies (95% of funds raised by the Bank). The concentration on the largest clients' funds is insignificant. The funding source diversification is acceptable.

Key assumptions

  • The Bank will follow the current business model;
  • The Bank's ownership structure will remain unchanged;
  • Tier 1 CAR (N1.2) will be higher than 20% in the next 12–18 months;
  • The share of problem loans will remain low.

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 negative rating action may be prompted by:

  • A decline in the Bank’s loan portfolio quality;
  • A loss of shareholding or operating control on the part of the Group;
  • A deterioration of the financial status of the Supporting Organization.

Rating components

SCA: a+.

Adjustments: none.

Support: 5 notches up 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 the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships between Rated Entities and Supporting Organizations outside the Russian Federation, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to LLC VW Bank RUS for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (February 28, 2018).

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

No material discrepancies between the provided information and the data officially disclosed by LLC VW Bank RUS in its financial statements have been discovered.

ACRA provided no additional services to LLC VW Bank RUS. No conflicts of interest were discovered in the course of credit rating assignment.

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