The credit rating of “Bank “Saint-Petersburg” PJSC (hereinafter – the BSPB, the Bank) is based on its stable and moderately conservative business model (in the context of the Russian banking market), which is implemented with an adequate level of capital adequacy. A weak and relatively concentrated risk profile puts pressure on the Bank’s standalone creditworthiness, while its credit rating level is supported by the BSPB’s local systemic importance for Russia’s North-Western Federal District.
Being one of Russia’s largest regional banks, the BSPB focuses on Saint-Petersburg, the Leningrad Region, Moscow, and Kaliningrad. Its key business lines are lending, corporate and retail cash management and banking services, trading on the foreign exchange and interbank markets, as well as transactions with securities. The Bank is among the twenty largest credit institutions on the Russian market in terms of own capital and assets.
Key rating assessment factors
Adequate business profile is characterized by the BSPB’s steady franchise, primarily on the banking market of St. Petersburg and the Leningrad region. The Bank’s lending activities are distinctly corporate-oriented with a moderate sectoral diversification and a slight predominance of funding to construction and real estate companies. Good relationships between the Bank owners and management with the city and regional authorities enables the Bank to service a portion of financial flows of public sector organizations and their employees. The BSPB’s medium term strategy is focused around organic development with an emphasis on boosting operational efficiency and increasing the role of the transactional business while maintaining core competencies on the domestic market.
Balanced own capital management policy provides for retaining an adequate level of loss absorption in terms of both the Russian regulatory norms and the Basel standards (10.7% as of end-September 2016). A sustainable ability to generate capital through net income (80–90 bps on average over the past five years), a moderate level of dividend payments, and a conservative growth strategy are the other key factors that help the Bank maintain a comfortable capital adequacy cushion.
Weak risk profile is related to a large share of problem loans in the Bank’s loan portfolio (13.3% of total as of September 30, 2016, by ACRA’s estimates), with a persisting concentration of debt issued to construction and real estate sector companies (over 150% of core capital). This kind of a risk profile increases the Bank’s financial profile sensitivity to negative trends in the operating environment and recession phases within economic cycle. On the other hand, ACRA notes that the risk associated this debt is partly mitigated by the latter’s high level of collateralization by real estate. A significant portfolio of debt securities (primarily of high credit quality), some of them foreign-currency-denominated, coupled with the short-term nature of funding on the money market translates into a higher (above average) market risk level (83% of core IFRS capital).
Adequate liquidity position. Although the Bank relies predominantly on short-term funding from the money market, its sufficient volume of highly liquid assets (around 10% of total assets) along with a creditor-diversified base of customer funding, ensures an adequate liquidity assessment. Under ACRA’s base case scenario, the BSPB is able to withstand an outflow of client funds: as of end-October 2016, its short-term liquidity shortage indicator (STLSI) stood positive within a three-month forecast horizon, with the liquidity cushion amounting to around RUB 40 bln. Under ACRA’s stress scenario, the deficit ran at 6.5% of total liabilities, which is acceptable for a large Russian Bank.
Balanced funding profile. The current funding structure of the BSPB is assessed as sufficiently balanced (the long-term liquidity shortage indicator, LTLSI, equaled 61% at end-September 2016), with no pronounced concentration on any one funding source. The structure of liabilities is dominated by funds raised from individuals and companies (38.8% and 26.2%, respectively, as of end-September 2016).
Importance for regional economy. The BSPB plays an important part in the economy of St. Petersburg and the Leningrad region, being one of the three local bank leaders – as of mid-2016, it held about RUB 164 bln of deposits by individuals permanently residing in the North-Western Federal District, and another RUB 142 bln deposited by corporates. In addition, the Bank handles a significant volume of cash payments by St. Petersburg’s public sector companies and their employees. According to ACRA, a bankruptcy of the BSPB may potentially cause problems for the financial sector and the socio-economic climate in the region. On the credit rating level, this is reflected in one notch added to its standalone creditworthiness assessment (SCA).
Key assumptions
- Maintaining strong competitive position in the core region;
- Loan portfolio growth rate of 7–10% in 2017;
- Cost of credit risk within 2.5–3%;
- Tier-1 capital adequacy (N1.2) 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;
- Implementation of the declared strategic plans aimed at boosting operating efficiency and business diversification.
A negative rating action may be prompted by:
- A partial loss of systemic importance for the regional economy;
- A much more aggressive growth strategy and/or dividend policy that will lead to a steady shrinkage of the Bank’s capital adequacy cushion.
Rating components
Standalone creditworthiness assessment (SCA): bbb+.
Adjustments: none.
Support: systemic importance, 1 notch up to the SCA level.
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 and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to “Bank “Saint-Petersburg” PJSC for the first time. The credit rating and its outlook are expected to be revised within 12 months following the rating action (December 19, 2016).
The assigned credit rating is based on the data provided by “Bank “Saint-Petersburg” PJSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of “Bank “Saint-Petersburg” PJSC and statements of “Bank “Saint-Petersburg” PJSC composed in compliance with the Bank of Russia Ordinance No. 2332-U dated November 12, 2009. 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 “Bank “Saint-Petersburg” PJSC in its financial statements have been discovered.
ACRA provided no additional services to “Bank “Saint-Petersburg” PJSC. No conflicts of interest were discovered in the course of credit rating assignment.
