Training on modelling fundamentals December 17–18

ACRA affirms AA(RU) to Bank GPB (JSC), outlook Positive, and AA(RU) to bond issues

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 neutral risk profile assessment. The rating is supported by Gazprombank’s critical systemic importance for the Russian financial market.

Gazprombank is one of Russia’s largest universal financial institutions that specializes in lending and other banking services 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 alliance with PJSC Gazprom. The Bank is a banking industry leader in terms of capital and assets. Its business profile assessment is further supported by the high quality of its corporate governance and adequate development strategy.

Adequate capital adequacy assessment. According to ACRA estimates, Gazprombank has managed to maintain Tier-1 and N1.2 capital adequacy ratios high (10.3% as of June 30, 2018 and 8.87% as of October 01, 2018, respectively). 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 stage 3 loans and impaired loans as per IFRS 9 has declined to 7.2% within 12 months preceding June 30, 2018, while the share of NPL90+ amounted to 2.5% as of late June 2018. At the same time, the Agency notes that the volatility of certain factors (the volume of loans to, and other receivables due from, related parties, the market risk level) within the Bank’s risk profile has been growing since the last rating action date.

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 late 1H2018). ACRA notes that the Bank’s relationships with the Group are stable and predictable. The Agency sees that the Bank’s dependence on corporate funds has grown, as the share of corporates has exceeded 60% of the total liabilities in 2018. In 2019, the Bank is expected to repay over RUB 179 bln 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, Gazprombank’s default may trigger a systemic crisis in certain segments of the Russian banking market and a number of industries, which will have a negative impact on the financial stability of the 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 will remain strong;
  • Cost of credit risk will be within 1%;
  • Net interest margin will be within 2–3%;
  • Common capital adequacy ratios (Tier-1/N1.2) will be above 8% within the 12 to 18-month horizon;
  • Moderate growth of diversification of loan portfolio and sources of income;
  • Funding structure will become more stable.

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely be changed within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Better risk profile factors (further improvement of assets quality, lower volume of target loans and direct investments);
  • Adequate market risk and ratio of related-party loans to Tier-1 capital in the next 12 months;
  • Growing capital generation capacity of the Bank.

A negative rating action may be prompted by:

  • Material decline in the core capital adequacy caused by outrunning growth of assets under risk or significant losses (increasing cost of risk);
  • Deteriorating quality of the loan portfolio;
  • Growing dependence on corporate funding sources.

Rating components

Standalone creditworthiness assessment (SCA): a.

Adjustment: systemic importance, 3 notches up to SCA.

Support: no.

Issue ratings

Credit rating rationale. The below bond issues represent senior unsecured debt of Bank GPB (JSC). 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 the ACRA methodology, the credit rating of the issue is equivalent to that of Bank GPB (JSC), i.e. AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-15 (RU000A0ZYHK5), maturity date: 01.12.2020, issue volume: RUB 10 bln, — АА(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-12 (RU000A0JX0P9), maturity date: 02.12.2019, issue volume: RUB 10 bln, — АА(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-25 (RU000A0ZYM05), maturity date: 26.12.2020, issue volume: RUB 5 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-22 (RU000A0JWE56), maturity date: 21.04.2019, issue volume: RUB 5 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-21 (RU000A0JW9R7), maturity date: 18.03.2019, issue volume: RUB 5 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-11 (RU000A0JWTK8), maturity date: 22.09.2019, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-10 (RU000A0JUV08), maturity date: 26.09.2024, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-09 (RU000A0JUQ39), maturity date: 27.06.2024, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-08 (RU000A0JUMH3), maturity date: 23.05.2024, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-07 (RU000A0JU7Y9), maturity date: 22.10.2023, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), certified interest-bearing bearer bond, series 12 (RU000A0JT6J5), maturity date: 06.10.2022, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), certified interest-bearing bearer bond, series 11 (RU000A0JT6G1), maturity date: 10.10.2019, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-18 (RU000A0ZYRX7), maturity date: 12.02.2023, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-19 (RU000A0ZYRY5), maturity date: 12.02.2023, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-23 (RU000A0JXHQ8), maturity date: 20.02.2020, issue volume: RUB 5 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-16 (RU000A0JXP45), maturity date: 18.04.2024, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-13 (RU000A0JXTF6), maturity date: 14.06.2020, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-14 (RU000A0ZYAE3), maturity date: 19.09.2020, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-17 (RU000A0ZYEE5), maturity date: 30.10.2024, issue volume: RUB 10 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series BO-24 (RU000A0ZYB73), maturity date: 26.09.2020, issue volume: RUB 5 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series 001Р-01Р (RU000A0ZZQU2), maturity date: 26.10.2023, issue volume: RUB 8 bln, — AA(RU).

Bank GPB (JSC), exchange-regulated bond, series 001Р-02Р (RU000A0ZZUL3), maturity date: 20.11.2023, issue volume: RUB 10 bln, — AA(RU).

Regulatory disclosure

The credit ratings were assigned to Bank GPB (JSC) and the bonds (ISIN RU000A0ZYHK5, RU000A0JX0P9, RU000A0ZYM05, RU000A0JWE56, RU000A0JW9R7, RU000A0JWTK8, RU000A0JUV08, RU000A0JUQ39, RU000A0JUMH3, RU000A0JU7Y9, RU000A0JT6J5, RU000A0JT6G1, RU000A0ZYRX7, RU000A0ZYRY5, RU000A0JXHQ8, RU000A0JXP45, RU000A0JXTF6, RU000A0ZYAE3, RU000A0ZYEE5, RU000A0ZYB73, RU000A0ZZQU2, RU000A0ZZUL3) issued by Bank GPB (JSC) under the national scale for the Russian Federation and 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 to assign credit rating to the above bond issues.

The credit rating assigned to Bank GPB (JSC) was first published by ACRA on November 24, 2016. Credit rating assigned to bond issue (ISIN RU000A0ZYHK5) was first published by ACRA on December 01, 2017, to bond issue (ISIN RU000A0JX0P9) — on December 07, 2016, to bond issue (ISIN RU000A0ZYM05) — on December 25, 2017, to bond issues

(ISIN RU000A0JWE56, RU000A0JW9R7, RU000A0JWTK8, RU000A0JUV08, RU000A0JUQ39, RU000A0JUMH3, RU000A0JU7Y9, RU000A0JT6J5, RU000A0JT6G1) — on December 28, 2017, to bond issues (ISIN RU000A0ZYRX7, RU000A0ZYRY5) — on February 09, 2018, to bond issue (ISIN RU000A0JXHQ8) — on February 28, 2017, to bond issue (ISIN RU000A0JXP45) — on April 24, 2017, to bond issue (ISIN RU000A0JXTF6) — on June 16, 2017, to bond issue (ISIN RU000A0ZYAE3) — on September 19, 2017, to bond issue (ISIN RU000A0ZYEE5) — on October 30, 2017, to bond issue (ISIN RU000A0ZYB73) — on September 25, 2017, to bond issue (ISIN RU000A0ZZQU2) — on October 25, 2018, to bond issue (ISIN RU000A0ZZUL3) — on November 19, 2018. The credit rating and credit rating outlook for Bank GPB (JSC) and the credit ratings of bonds issued by Bank GPB (JSC) (ISIN RU000A0ZYHK5, RU000A0JX0P9, RU000A0ZYM05, RU000A0JWE56, RU000A0JW9R7, RU000A0JWTK8, RU000A0JUV08, RU000A0JUQ39, RU000A0JUMH3, RU000A0JU7Y9, RU000A0JT6J5, RU000A0JT6G1, RU000A0ZYRX7, RU000A0ZYRY5, RU000A0JXHQ8, RU000A0JXP45, RU000A0JXTF6, RU000A0ZYAE3, RU000A0ZYEE5, RU000A0ZYB73, RU000A0ZZQU2, RU000A0ZZUL3) are expected to be revised within one year following the rating action date (December 4, 2018).

The assigned credit ratings are 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 additional services to Bank GPB (JSC). No conflicts of interest were discovered in the course of credit rating assignment.

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