The credit rating of JSC «RN Bank» (hereinafter, the Bank) is based on the Bank’s standalone creditworthiness assessment (SCA) at a, and on the high probability of the Bank receiving necessary shareholder support. The Bank’s SCA is based on strong capital adequacy, an adequate risk profile, and adequate liquidity and funding positions.
The Bank is a medium-sized credit institution fully owned by foreign shareholders, including AO UniCredit Bank (AAA(RU), outlook Stable), a subsidiary of UniCredit S.p.A., with a 40% share, the French automobile manufacturer Renault S.A. (30% via its subsidiary RCI Banque S.A.), and the Japanese company Nissan Motor Co., Ltd. (30%). The Bank is a captive finance company of the Renault-Nissan-Mitsubishi Alliance (the Alliance), and therefore its business profile is focused on car loans and factoring receivables for car dealerships. The Bank has no proprietary branch network, but it issues secured loans through car showrooms (spread out nationwide, but concentrated mostly in the Central Federal District of Russia). In contrast, factoring deals are made in the Bank’s headquarters only.
Key rating assessment factors
High likelihood of extraordinary support from Supporting Organizations (SOs). ACRA believes that if necessary, RCI Banque S.A., Nissan Motor Co., Ltd., and Unicredit S.p.A. will provide the Bank with long-term and short-term financing as well as replenish its capital. ACRA considers the abovementioned entities to be the Bank’s SOs, as AO UniCredit Bank, in particular, coordinates all strategic decisions concerning the Bank with Unicredit S.p.A.. ACRA believes the SOs are ready to provide extraordinary support based on the following factors:
- Strategic importance of the Russian market for the Alliance;
- Potentially high reputational risks in the event of the Bank’s bankruptcy.
ACRA assesses the final country risk of the foreign SOs’ jurisdictions of presence (compared to Russia’s country risk) and the Bank’s relationships with its shareholders as generally strong. ACRA assesses the SOs’ overall creditworthiness as moderately strong. Therefore, the Bank’s SCA is upgraded by five notches. ACRA notes that some deterioration in the financial situation of Nissan Motor Co., Ltd. and changes in the management structure of the Alliance have not yet negatively affected overall SO creditworthiness. However, in the event of a negative development, the final assessment may be downgraded to neutral, which may lead to a decrease in the number of support notches used by ACRA.
Adequate business profile. Although poorly diversified due to its specific business niche, the Bank’s operating income before provisions has grown steadily over the past five years due to rapid development in both the Bank’s core business and ancillary services (financial services supplementing retail lending performed by the Bank). Since the actual launch of operations in August 2013 after acquiring and rebranding Bank Sibir, the Bank has rapidly built up its operating efficiency, which ACRA now assesses as high. In 2020, the Bank will pursue a strategy generally in line with current macroeconomic trends and is viewed by ACRA as a realistic approach.
The Bank’s strong capital adequacy assessment is based on consistently adequate capital adequacy ratios. As of January 1, 2020, N1.2 equaled 15%, allowing the Bank to withstand a credit risk increase over 500 bps without a breach of capital adequacy ratios or the need for financial assistance from shareholders. The current averaged capital generation ratio is low (77 bps over the past five years) because of the Bank’s short period of operation, but this figure has grown quickly.
The adequate risk profile assessment is supported by the Bank’s quality risk management system, which is based on independent internal decision-making processes and supervised by the Bank’s shareholders. The Bank’s risk management system is also characterized by the high underwriting standards, transparent and streamlined risk management procedures, and regularly updated risk management solutions. This is confirmed by, among other things, the high quality of the loan portfolio. In ACRA’s opinion, the share of problem and potentially problem loans in the portfolio is low (4.8%, including 1.4% of NPL90+, as of June 30, 2019). The Bank’s receivables include car loans (about 60% of the portfolio) and factored receivables. In view of the above, the portfolio shows no concentration on high-risk industries or related parties, and the concentration on the largest borrowers has remained low (16% of the portfolio).
Adequate liquidity and funding assessment. The Bank is very capable of fulfilling its obligations within the 90-day horizon given its substantial short-term liquidity surplus demonstrated in both the base case scenario (about RUB 25 bln) and the stress scenario (18% of liabilities), as well as the option for immediately raising significant amounts of short-term ruble liquidity from shareholders. The average short-time liquidity indicator significantly exceeded 100% in 2019. ACRA notes no imbalances within longer periods, as the long-term liquidity shortage indicator is high. No large-scale repayments/fund outflows are expected within the next 12 months.
At the same time, the Bank’s concentration on top lenders has remained high (the top ten lenders account for 52.5% of the funding base, including shareholders for 27%). Active bond issuance increases the diversification of the resource base. The share of the largest source (interbank loans) decreased from 56% to 44.5% in 6M 2019. The Bank has raised no funds from the regulator.
- Maintaining the current business model within the 12 to 18-month horizon;
- No significant changes in shareholder structure within the 12 to 18-month horizon;
- Net interest margin within 6%;
- Capital adequacy ratio (N1.2) above 11% within the 12 to 18-month horizon;
- UniCredit S.p.A. retaining its shareholder, strategic, and operational control over AO UniCredit Bank as a shareholder of the Bank.
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:
- Deterioration of shareholder financial condition and/or negative trends in the management of Alliance structures;
- Decline in shareholder willingness to support the Bank;
- Significant shift in the Bank’s business development strategy;
- Substantial increase in problem loans in the Bank’s loan portfolio.
Support: SCA + 5 notches.
Bond issued by JSC «RN Bank», series BO-001R-01 (RU000A0JXNV6), maturity date: April 16, 2020, issue volume: RUB 5 bln — ААA(RU)
Bond issued by JSC «RN Bank», series BO-001R-02 (RU000A0ZYCQ3), maturity date: October 14, 2020, issue volume: RUB 5 bln — АAА(RU)
Bond issued by JSC «RN Bank», series BO-001R-03 (RU000A0ZZUK5), maturity date: November 22, 2021, issue volume: RUB 5 bln — ААА(RU)
Bond issued by JSC «RN Bank», series BO-001R-04 (RU000A1003Q0), maturity date: February 16, 2022, issue volume: RUB 5 bln — ААА(RU)
Bond issued by JSC «RN Bank», series BO-001R-05 (RU000A100A90), maturity date: April 25, 2022, issue volume: RUB 8 bln — ААА(RU)
Bond issued by JSC «RN Bank», series BO-001R-06 (RU000A100UU0), maturity date: September 26, 2022, issue volume: RUB 7 bln — ААА(RU)
Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of JSC «RN Bank» – AAA(RU).
The credit ratings were assigned to JSC «RN Bank» and the bonds (RU000A0JXNV6, RU000A0ZYCQ3, RU000A0ZZUK5, RU000A1003Q0, RU000A100A90, RU000A100UU0) issued by JSC «RN Bank» under the national scale for the Russian Federation 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 Registered Outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. To assign credit ratings to the bond issues above, ACRA also used the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation.
The credit rating assigned to JSC «RN Bank» and the credit ratings assigned to the bonds (RU000A0JXNV6, RU000A0ZYCQ3, RU000A0ZZUK5, RU000A1003Q0, RU000A100A90, RU000A100UU0) issued by JSC «RN Bank» were first published by ACRA on March 2, 2017, April 17, 2017, October 12, 2017, November 19, 2018, February 13, 2019, April 22, 2019, and September 23, 2019, respectively. The credit rating of JSC «RN Bank» and its outlook, as well as the credit ratings of the bonds (RU000A0JXNV6, RU000A0ZYCQ3, RU000A0ZZUK5, RU000A1003Q0, RU000A100A90, RU000A100UU0) issued by JSC «RN Bank» are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by JSC «RN Bank», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC «RN Bank» and the financial statements of JSC «RN Bank» composed in compliance with Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit ratings are solicited, and JSC «RN Bank» participated in the rating process.
No material discrepancies between the provided data and the data officially disclosed by JSC «RN Bank» in its financial statements have been discovered.
ACRA provided no additional services to JSC «RN Bank». No conflicts of interest were discovered in the course of credit rating process.