The credit rating of Russian National Commercial Bank (hereinafter, RNCB, or the Bank) is based on the Bank's sustainable but concentrated business profile, strong capital adequacy, satisfactory risk profile, and adequate funding and liquidity position. The rating is supported by the Bank’s medium systemic importance for the Russian economy and a very strong state influence on its creditworthiness, as per ACRA's methodology.

The credit rating of bond (ISIN RU000A101FK0), which is a senior unsecured debt instrument of the Bank, is equal to the issuer's credit rating, i.e. A+(RU).

RNCB is the largest bank in the Crimea Region and the city of Sevastopol; it ranks 27th in equity among Russian credit institutions. The Bank offers universal banking services and is 100% owned by the Russian Federation represented by the Federal Agency for State Property Management.

Key rating assessment factors

High likelihood of extraordinary support from the government. RNCB is a dominating player on the Crimea peninsula, a market, which is strategically important for the Russian Federation. RNCB’s bankruptcy would lead to a significant deterioration of the economic environment in the Republic and pose certain risks to its population, since the Bank services a significant amount of social payments. At the same time, RNCB’s default would not incur substantial risks for federal or regional budgets because its share in budget revenues is small. In ACRA’s opinion, the above factors indicate a medium systemic importance of RNCB.

The state exercises the shareholder and operational control over the Bank, by defining its strategy and supporting it with capital. RNCB issues loans for pivotal infrastructure projects in Crimea and Sevastopol. The Agency is of the opinion that the state has a very strong influence on the Bank.

The satisfactory business profile assessment includes risks of regional specifics of the Bank’s business. Crimea remains the Bank's key operational region, still avoided by the leading Russian banks. This allows the Bank to expand actively, but makes it dependent on the sanctions regime. Penetration to other regions, including Krasnodar Krai, is limited since the competition is high. The Bank has maintained a high diversification of its operating income thanks to a high volume of non-interest earnings and a range of different lending services.

The Bank's strong capital adequacy position reflects its high capital adequacy ratios (N1.2 amounted to 21.4% as of February 1, 2021, and N20.2 exceeded 20% at the end of 2020), which allow the Bank to withstand an increase in credit risk by more than 500 bps. The Bank's capacity to generate new capital is adequate (the average capital generation ratio (ACGR) for 2016–2020 exceeds 100 bps). No dividends were paid in 2020; these funds, as well as equity capital (RUB 7.5 bln) raised at the end of 2020, were applied to develop the Bank's business further. The operational efficiency of the Bank is assessed as adequate.

The risk profile is satisfactory due to the acceptable quality of the loan portfolio equal to 76.5% of assets, in which the share of problem assets is about 10% (excluding assets covered by state guarantees) and the concentration on the top ten groups of borrowers is high (about 30% of the portfolio, excluding assets covered by state guarantees). The share of loans issued to companies from high-risk industries is insignificant (16% of common equity), and the quality of the portfolio of contingent liabilities is acceptable. Market and operational risks are low.

The liquidity and funding position is assessed as adequate to reflect the Bank's fairly stable liquidity positions (as of December 31, 2020, the short-term liquidity surplus amounted to RUB 24 bln in the base case scenario of ACRA, and in the stress scenario, the shortage slightly exceeded 5% of liabilities, while the long-term liquidity shortage indicator (LTLSI) was about 60%), as well as moderate concentration of the resource base. The share of funds of the largest depositor, the State Corporation Deposit Insurance Agency, amounted to less than 13.7% of liabilities as of December 31, 2020, and the share of funds of the ten largest groups of lenders (depositors) was about 25%. At the same time, funds held with the Bank by individuals and sole entrepreneurs, the main funding source of the Bank, form about 60% of liabilities. No significant repayments are expected over the next 12–18 months.

Key assumptions

  • The Russian government to retain its shareholder control over the Bank;
  • The Bank to adhere to its current business model in the next 12–18 months;
  • The Bank to maintain high diversification of operating income;
  • Tier-1 capital adequacy ratios (N1.2 and N20.2) not lower than 15% in the next 12–18 months.

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:

  • Lower share of problem loans in the loan book and/or lower concentration on the top ten groups of borrowers;
  • Improved liquidity and funding position.

A negative rating action may be prompted by:

  • Deteriorating competitive environment in the key region of the Bank's presence;
  • Significantly lower credit quality of assets;
  • Significantly lower capital adequacy ratios;
  • Higher concentration of the funding base on the largest source and/or largest lenders.

Rating components

SCA: bbb+.

Adjustments: state influence, 3 notches up to the SCA.

Issue ratings

Exchange-traded interest-bearing certified unregistered bond, 01 series (RU000A101FK0), maturity: February 16, 2023, issue volume: RUB 3 bln — А+(RU).

Rationale.  The above issue represents senior unsecured debt of RNCB. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Bank. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of RNCB, i. e. A+(RU).

Regulatory disclosure

The credit ratings were assigned to RNCB and the bond (ISIN RU000A101FK0) issued by RNCB 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 Relationships Between Rated Entities and the State, 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 applied in the credit rating process.

The credit ratings of RNCB and the bond (ISIN RU000A101FK0) issued by RNCB were first published by ACRA on April 11, 2017 and February 20, 2020, respectively. The credit rating of RNCB and its outlook and the credit rating of the above bond are expected to be revised within one year following the publication date of this press release.

The credit ratings are based on RNCB’s data, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of RNCB composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit ratings are solicited, and RNCB participated in their assignment.

No material discrepancies between the provided data and data officially disclosed by RNCB in its financial statements have been discovered.

ACRA provided additional services to RNCB. No conflicts of interest were discovered in the course of credit rating assignment.

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Analysts

Irina Nosova
Director, Financial Institutions Ratings Group
+7 (495) 139 04 81
Mikhail Polukhin
Director, Financial Institutions Ratings Group
+7 (495) 139 03 47
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