The credit rating of AO Citibank (hereinafter, the Bank) is based on the Bank’s high standalone creditworthiness assessment (SCA) and the very high likelihood of extraordinary support from its parent company, which also boasts high creditworthiness. The Bank’s SCA is based on notable positions in target market segments, an adequate capital position, and an adequate risk profile.
Citibank is a large universal bank and one of the top 20 Russian banks in terms of assets. The Bank’s ultimate parent is Citigroup Inc. (hereinafter, the Supporting Organization, or SO), one of the largest global banks.
Key rating assessment factors
Very high likelihood of extraordinary support from the SO. ACRA believes that, if necessary, the SO will provide the Bank with short-term and long-term funding and capital injections for the following reasons:
- The Russian market is strategically important for the SO as part of its global presence;
- There is a pronounced operational integration; the Bank is integrated in the SO’s unified capital management, risk management, strategic planning, and internal control systems;
- There is a substantial amount of guarantees issued by SO companies for loans granted by the Bank;
- In the case of the Bank’s default, the SO may face substantial operational and financial risks.
ACRA assesses the country risk of the Supporting Organization’s jurisdiction (USA) against the country risk of Russia and the Supporting Organization’s creditworthiness as strong and the degree of association between the Bank and the SO as strong. Therefore, the Bank’s credit rating is on par with the Russian Federation.
The high business profile assessment (a+) is based on the Bank’s strong franchise in the premium retail banking and large corporate and international business segments. Such a range of business lines and moderate risk appetite result in the Bank’s ability to generate consistently high operating income with minimum susceptibility to economic cycle phases. Due to the universal nature of its business, the Bank’s operating income is highly diversified, as indicated by the Herfindahl-Hirschman Index of 0.11 for 2019. The Bank’s management quality has remained high.
Adequate capital position. ACRA notes the Bank’s substantial unexpected loss absorption cushion for unexpected losses, which is confirmed by the capital adequacy ratio N1.2 at 11.1% (as of January 1, 2020). The high profitability of operations allows the Bank to withstand a substantial increase (well above 500 bps) in the cost of credit risk without violating regulatory requirements. The Bank’s ability to generate net profit regardless of the phase of the economic cycle is based on the high level of net interest margin (NIM), which averaged 5.8% for 2017-2019. However, the Bank directs a large part its net profit to paying dividends. This negatively affects the Bank’s ability to increase capital, as assessed by ACRA using the average capital generation ratio (which has averaged 23 bps over the past five years).
ACRA affirms the adequate assessment of the Bank’s risk profile, as the volume of problem loans is low and loan portfolio concentration is relatively high. As of March 31, 2020, the share of NPL90+ was as low as 0.2% of the loan portfolio, while the share of problem and potentially problem loans was below 1%. The share of loans granted to the top 10 groups of borrowers amounted to 31.7%. ACRA assesses the financial stability of the Bank’s counterparties under contingent liabilities as high. The Bank places most of its temporarily free funds with the Bank of Russia and Citigroup companies or purchases Russian sovereign bonds. The risk profile assessment is also supported by the adequate quality of the Bank’s risk management system.
Strong liquidity combined with a well-balanced funding profile. The Bank firmly withstands the outflow of deposits under both ACRA’s base case and stress scenarios. The Bank’s long-term liquidity is assessed as adequate. The securities portfolio (primarily federal bonds) may serve as an additional source of liquidity. The funding profile is well diversified in terms of sources; as of May 1, 2020, corporate funds, the largest funding source, accounted for 59% of liabilities. As of April 1, 2020, the share of the top 10 groups of lenders was 16.3%, while the share the largest lender was 3.5%. The Bank has continued to demonstrate low dependence on borrowings from the Supporting Organization.
Key assumptions
- The SO maintaining its shareholding and operating control over the Bank;
- Cost of credit risk below 1%;
- NIM within 5.5-6.5%;
- N1.2 above 9% 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 negative rating action may be prompted by:
- Loss by the SO of its shareholding and operating control over the Bank, or reduced propensity of the SO to support the Bank;
- Decreased strategic importance of the Bank for the SO;
- Substantial decline in the creditworthiness of the SO.
Rating components
SCA: aa.
Adjustments: none.
Support: on par with the RF.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned 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 outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating assigned to AO Citibank was first published by ACRA on July 6, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by AO Citibank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of AO Citibank and the financial statements of AO Citibank drawn up in compliance with Bank of Russia Ordinance № 4927-U of October 8, 2018. The credit rating is solicited, and AO Citibank participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by AO Citibank in its financial statements have been discovered.
ACRA provided no additional services to AO Citibank. No conflicts of interest were discovered in the course of credit rating assignment.
