The AAA(RU) credit rating of Limited Liability Company Rusfinance Bank (hereinafter – Rusfinance Bank, or the Bank) is based on very high probability of the Bank getting extraordinary support from its shareholder PJSC ROSBANK (hereinafter may also be referred to as Rosbank). Compared to other credit institutions in Russia, Rusfinance Bank is characterized by a moderately high standalone creditworthiness assessment (SCA), which is supported by adequate business and risk profiles, a significant capital adequacy cushion and a strong liquidity position.
Rusfinance Bank (formerly Promek Bank), which was acquired in 2005 by Societe Generale Group and is now fully owned by it through Rosbank, stands out as one of Russia’s largest credit institutions, faring 50th by own capital and 65th by assets as of March 1, 2017. The Bank mainly focuses on automobile lending, the segment where it traditionally ranks within the top three, and point-of-sale consumer lending (POS lending).
Key rating assessment factors
Very high probability of extraordinary support from the shareholder. The sole shareholder of Rusfinance Bank is PJSC ROSBANK, which is regarded as a supporting organization and characterized by the highest possible creditworthiness assessment at AAA(RU), outlook Stable. ACRA believes that Rosbank will readily provide Rusfinance Bank with sufficient long-term and short-term financing and, if necessary, replenish its capital, given that:
- Rosbank completely owns Rusfinance Bank;
- Rosbank uses Rusfinance Bank as a tool for implementing automobile and POS lending strategies within the scope of the Russian business segment of Societe Generale Group, Rosbank’s controlling shareholder;
- Societe Generale Group regards the Russian banking market, including its retail lending segment, as a strategically important one;
- Rosbank and Rusfinance Bank show a large degree of operational integration;
- A hypothetical bankruptcy of Rusfinance Bank may pose high reputational risks for Societe Generale Group as a whole.
In view of the above, the credit rating of Rusfinance Bank has been set on par with that of Rosbank.
Business profile assessment at “bbb” reflects the Bank’s strong automobile lending franchise in Russia. In 2016, it boasted a share of some 5.8% on the new car sales market, controlling 13.5% of automobile lending, which points out its very strong positions on this highly competitive market. With a pronounced niche-oriented business model, the Bank shows low diversification: its Herfindahl-Hirschman operating income diversification index calculated by ACRA was standing at 0.43 as of end-2016.
Management quality at Rusfinance Bank is assessed as high in the context of the Russian financial market, which is supported by the Bank’s close integration with the Russian segment of Societe Generale Group and thus by implementation of the latter’s best corporate governance practices to efficiently manage all business processes. The organizational structure of the Bank is transparent, streamlined and adequate to its business size and assumed risks.
Capital adequacy is high, which is an important SCA driver. The Bank saw its Basel Tier 1 fare 24.1% at end-2016, while regulatory capital adequacy N1.2 was at 14.5%.
Rusfinance Bank has traditionally boasted high profitability, thanks to stable net interest margin (NIM) and moderate cost of risk (CoR). Sustainable interest margin backed by gradual operating environment stabilization in the Russian banking system serves as one of key assumptions within the ACRA 12 to 18-month base case scenario for Rusfinance Bank.
Adequate assessment of Rusfinance Bank’s risk profile is mainly based on the quality of its collateral base and high coverage of problem loans with provisions on the balance sheet. According to the Bank’s IFRS statements, loans overdue for over 90 days accounted for 12.8% of its loan portfolio as of January 1, 2017. A significant proportion of problem loans is typical for the segments the Bank focuses on (multi-brand automobile lending and POS lending), but is secured by highly liquid collaterals, such as motor cars.
As of January 1, 2017, the provision coverage ratio stood at some 82%, almost completely covering consumer loans overdue for over 90 days. The level of problem loans declined from 15% seen in 2015 due to write-offs and bad debt sales on the back of stabilization and gradual improvement of loan portfolio quality.
The risk management team’s competence at the Bank is assessed as adequate, which is supportive for the overall risk profile assessment.
Adequate liquidity and funding position. The Bank's liquidity position reflects the uniformity of the liquidity management policy within the Rosbank group, which includes PJSC ROSBANK, Limited Liability Company Rusfinance Bank, and DeltaCredit Bank JSC. In accordance with this policy, the Bank holds no significant short-term liquidity on its balance sheet, with liquidity flows and provision timeliness hinging on the needs of the group as a whole and the current market situation. That said, the Bank’s long-term liquidity position reflects a significant liquidity surplus, which is underscored by the adequate liquidity assessment based on the ACRA methodology. The Bank’s funding structure is dominated by its own medium- and long-term bonds and interbank loans, mainly provided by Rosbank. Rusfinance Bank does not depend on regulator funding.
Key assumptions
- Retaining shareholder and operational control over the Bank by PJSC ROSBANK;
- Cost of credit risk at 3-3.5%;
- IFRS core capital adequacy exceeding 20% within the 12 to 18-month horizon.
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:
- Rusfinance Bank has the highest possible credit rating under the ACRA national scale.
A negative rating action may be prompted by:
- Forfeiture of shareholder and operational control on the part of Rosbank and Societe Generale Group, coupled with a material decline in the Bank’s importance within the group.
Rating components
Standalone creditworthiness assessment (SCA): a.
Adjustment: on par with PJSC ROSBANK.
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 Member Company Relationships Within Corporate Groups, 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 Limited Liability Company Rusfinance Bank for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (April 25, 2017).
The assigned credit rating is based on the data provided by Limited Liability Company Rusfinance Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of Limited Liability Company Rusfinance Bank, and the financial statements of Limited Liability Company Rusfinance Bank, drawn up in compliance with the Bank of Russia Ordinance No. 2332-U of November 12, 2009. The credit rating is solicited, and Limited Liability Company Rusfinance Bank participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by Limited Liability Company Rusfinance Bank in its financial statements have been discovered.
ACRA provided no additional services to Limited Liability Company Rusfinance Bank. No conflicts of interest were discovered in the course of credit rating assignment.
