The credit rating of Credit Europe Bank (Russia) Ltd. (hereinafter, the Bank) is based on the satisfactory assessment of its business and risk profiles, as well as adequate capital adequacy and funding and liquidity.

The change in outlook to “Stable” reflects ACRA’s expectations for maintaining the current assessment of the Bank’s risk profile, considering that a significant reduction in the share of problem and potentially problem debt in its loan portfolio is unlikely within the 12 to 18-month horizon.

The Bank is a universal foreign subsidiary bank that ranked 58th in capital as of May 1, 2021. The Bank is a part of FIBA Group, Turkey (hereinafter, the Group). Fifty five percent of shares in the Bank belong to FIBA Holdings A.S., 35% belong to FINA Holdings A.S, and the remaining 10% to Credit Europe Bank N.V. The Bank focuses on operations with the population both when it comes to lending (mainly car loans, unsecured consumer loans, and credit cards), and the resource base, as well as on corporate banking.

Key rating assessment factors

The satisfactory business profile assessment (bbb-) is based on the Bank’s market positions and highly diversified operating income (the Herfindahl-Hirschman index stood at 0.17 in 2020), considering a wide range of loan products and services that generate significant fee income. The quality of the Bank’s management and strategy is assessed as adequate in the context of the Russian banking system.

ACRA maintains its adequate assessment of the Bank’s capital, given the Bank’s relatively high capital adequacy ratios and satisfactory ability to generate net profit (the averaged capital generation ratio for 2016-2020 was 55 bps). The Tier-1 capital ratio stood at 16.9% at the end of 2020, while N1.2 was 12% as of June 1, 2021. The current loss absorption reserve allows the Bank to withstand an increase in the cost of credit risk of 400-500 bps without support from the shareholders. Operational efficiency is assessed as average for the peer group of banks: for the last three years CTI stood at 60%, net interest margin (NIM) — 7.3%.

The Bank’s satisfactory risk profile assessment reflects the loan portfolio quality (75% of assets), the share of problem and potentially problem loans in which surged due to the coronavirus pandemic. In particular, Stage 3 loans under IFRS 9 rose from 9.3% to 12% of loans in 2020 (reserve coverage is low — 61%), while potentially problem loans (forced restructured) account for not more than 8.8% of the portfolio. At the same time, in January–May, 2021, the Bank has been actively working to reduce its problem debt, including by actively writing it off. Concentration of the Bank’s loan portfolio on the ten largest groups of borrowers is not high — 18.8% of loans, on high-risk industries — nearly 0.5х of Tier–1.

Adequate liquidity and funding profile. As of December 31, 2020, the Bank was able to withstand an outflow of client funds in both ACRA’s base case and stress scenarios. The long-term liquidity shortage indicator was adequate — 77%. The funding profile is dominated by consumer funds, which formed 67% of liabilities as of December 31, 2020, and low concentration on the largest creditors (the share of the top ten groups of creditors stood at 13%, while the share of the largest creditor totaled 3.5%).

Key assumptions

  • Cost of credit risk within 4–5%;
  • NIM at around 7%;
  • N1.2 above 9% within the 12 to 18-month horizon;
  • Maintaining the current funding profile.

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:

  • Higher own capital generation capacity coupled with no decline in capital adequacy ratios;
  • Significant decline in problem debt coupled with the maintenance of low concentration on the largest groups of borrowers.

A negative rating action may be prompted by:

  • Deteriorating capital position, including due to the formation of additional reserves;
  • Growing concentration of the loan portfolio on the largest groups of borrowers or high-risk industries;
  • Deteriorating funding and/or liquidity position.

Rating components

SCA: bbb.

Adjustments: none.

Issue ratings

Credit Europe Bank (Russia) Ltd., (ISIN RU000A100X77), maturity date: October 7, 2022, issue volume: RUB 5 bln — BBB(RU).

Credit rating rationale. The above issue represents a senior unsecured debt instrument of Credit Europe Bank (Russia) Ltd. Due to the absence of either structural or contractual subordination of the issue, ACRA ranks it 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 Credit Europe Bank (Russia) Ltd., i.e. BBB(RU).

Regulatory disclosure

The credit ratings were assigned to Credit Europe Bank (Russia) Ltd. and the bond issued by Credit Europe Bank (Russia) Ltd. (RU000A100X77) 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, 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 on the National Scale for the Russian Federation was also used in the credit rating process.

The credit ratings of Credit Europe Bank (Russia) Ltd. and the bond issued by Credit Europe Bank (Russia) Ltd. (RU000A100X77) were first published by ACRA on July 14, 2017 and October 14, 2019, respectively. The credit rating of Credit Europe Bank (Russia) Ltd. and its outlook as well as 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 the data provided by Credit Europe Bank (Russia) Ltd., information from publicly available sources, and ACRA’s own databases. The rating analysis is based on the consolidated IFRS financial statements of Credit Europe Bank (Russia) Ltd. and financial statements of Credit Europe Bank (Russia) Ltd. composed in compliance with the Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit ratings are solicited, and Credit Europe Bank (Russia) Ltd. participated in the rating process.

In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

ACRA provided additional services to Credit Europe Bank (Russia) Ltd. 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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