The credit rating of Bank RRDB (JSC) (hereinafter, RRDB, or the Bank) stems from the Bank’s sustainable business profile and strong capital adequacy. The standalone creditworthiness assessment (SCA) is under certain pressure from a high concentration of both assets and funding on RRDB’s affiliates, namely, the companies of the parent group (hereinafter, the Supporting Entity, the SE, or the parent company), as well as from the risks arising from the active growth of the scale of the Bank’s activities.
RRDB acts as a settlement center for its parent holding company and provides a wide range of services to its counterparties, clients, and employees.
Key rating assessment factors
High likelihood of support from the parent company. ACRA believes that the creditworthiness of the shareholding company is high and it has sufficient resources to provide RRDB with capital and liquidity if necessary. The Agency notes that the shareholder significantly recapitalized RRDB in 2016, which confirms the Supporting Entity’s interest in developing the Bank’s business. The high level of support is also backed by the Bank’s deep operational integration in the group. The assessment of the likelihood of support is capped by the moderate strategic risk for the SE, given the differing nature of operations of the Bank and the parent company. Three notches are added to the Bank’s SCA taking into account the support for the credit rating.
The Bank’s business profile assessment reflects its strong positions in the Russian banking sector: RRDB ranked 13th in terms of capital and 15th in terms of assets among Russian banks as of June 1, 2021. The Bank has a high-quality brand, and its operating income is highly diversified. However, the business profile assessment still includes the specific market niche of the Bank, as currently it is focused on servicing fuel and power companies, and the possible risks associated with the rapid increase in the size of assets.
RRDB is the temporary administrator of Peresvet Bank (the procedure is supposed to run until 2032). ACRA estimates RRDB’s engagement in the rehabilitation as neutral in terms of its creditworthiness.
ACRA assesses the Bank’s capital adequacy as strong, which is positive for the SCA. As of June 1, 2021, the RAS N1.2 capital adequacy ratio was 17.6% (RRDB does not disclosure its IFRS Tier 1 capital indicator in its audited financial statements). This indicator is on a downward trend due to the Bank gradually increasing the size of its loan portfolio. However, ACRA does not expect the capital adequacy indicator to fall to a level that could impact the assessment of this factor within the 12 to 18-month horizon. In addition, the Bank has a high capital generation potential (the averaged capital generation ratio, or ACGR, has exceeded 100 bps in the past five years). According to ACRA’s stress test, the Bank has a high capacity to absorb potential credit risks: RRDB can withstand a significant increase in the cost of risk without breaching regulatory requirements (including taking into account the expected growth of the loan portfolio).
The satisfactory risk profile assessment reflects the level of the Bank’s non-performing loans (that remains very low), combined with the loan portfolio’s heightened concentration on major borrowers (the ten largest groups of borrowers accounted for 48.7% of the portfolio as of the start of 2021 according to IFRS reporting) and fuel and power companies. The volume of impaired loans (Stage 3 loans under IFRS and acquired or issued impaired loans) was 1.9% of the total loan portfolio as of January 1, 2021. The Bank’s strategy includes significant growth in lending to new borrowers from various sectors of the economy, which continues to constrain the risk profile assessment.
The quality and diversification of the Bank’s securities portfolio is good, as the portfolio includes bonds issued by the largest Russian non-financial corporations and banks, as well as the Russian government and quasi-sovereign borrowers. In addition, the Bank places liquid funds at a number of (mainly Russian) banks with high creditworthiness.
The funding and liquidity factor is assessed as adequate, taking into account the Bank’s short-term liquidity surplus in ACRA’s base case scenario and a deficit in the stress scenario, and the strong long-term liquidity position of the Bank.
At the same time, the high funding concentration on the parent company and related companies limits this factor amid a high share of funds of corporate clients in the Bank’s liabilities. ACRA does not expect any major changes in the funding structure in the 12 to 18-month horizon.
- Cost of credit risk no higher than 2% within the 12 to 18-month horizon;
- Problem loans (as per ACRA’s assessment) no higher than 5% within the 12 to 18-month horizon;
- N1.2 capital adequacy ratio exceeding 12% 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:
- Lower loan portfolio growth rate amid a stably low level of problem loans;
- Lower concentration of the loan portfolio on the largest groups of borrowers;
- Increased diversification of funding sources.
A negative rating action may be prompted by:
- Growth in the share of problem loans in the loan portfolio;
- Substantial decrease in profits and capital adequacy (to N1.2 ratio below 12%);
- Significant narrowing of the functions and declining importance of the Bank within the group;
- Deteriorating liquidity position of the Bank.
Adjustments: influence of the Supporting Entity: + three notches.
Bank RRDB (JSC), 001R-02 (RU000A0ZYQX9), maturity date: July 30, 2021, issue volume: RUB 5 bln — AA(RU).
Bank RRDB (JSC), 001R-03 (RU000A100691), maturity date: March 8, 2024, issue volume: RUB 5 bln — AA(RU).
Bank RRDB (JSC), 001R-04 (RU000A101NQ1), maturity date: May 9, 2025, issue volume: RUB 5 bln — AA(RU).
Bank RRDB (JSC), 001R-05 (RU000A1025H2), maturity date: September 18, 2025, issue volume: RUB 5 bln — AA(RU).
Rationale. The bonds listed above are senior unsecured debt instruments of RRDB. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks them as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Bank. According to ACRA’s methodology, the credit ratings of the issues are equivalent to that of Bank RRDB (JSC), i.e. AA(RU).
The credit ratings have been assigned to Bank RRDB (JSC) and the bonds (RU000A0ZYQX9, RU000A100691, RU000A101NQ1, RU000A1025H2) issued by Bank RRDB (JSC) 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 Rated Entities Associated with a State or a Group, 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 applied to assign credit ratings to the above issues.
The credit rating of Bank RRDB (JSC) and the credit ratings of the bonds issued by Bank RRDB (JSC) — RU000A0ZYQX9, RU000A100691, RU000A101NQ1, and RU000A1025H2 — were published by ACRA for the first time on July 25, 2017, January 31, 2018, March 14, 2019, May 14, 2020, and September 24, 2020, respectively. The credit rating of Bank RRDB (JSC) and its outlook and the credit rating of the bonds of Bank RRDB (JSC) are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by Bank RRDB (JSC), information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated financial statements of Bank RRDB (JSC) and the financial statements of Bank RRDB (JSC) drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit ratings are solicited, and Bank RRDB (JSC) participated in their assignment.
In assigning the credit ratings, 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 Bank RRDB (JSC). No conflicts of interest were discovered in the course of credit rating assignment.