The credit rating of VTB Bank (PJSC) (hereinafter, VTB Bank, or the Bank) is on a par with the financial obligations of the Government of the Russian Federation, which reflects the very high likelihood of extraordinary support being provided to the Bank by the state if necessary due to its very high systemic importance. At the same time, the Bank’s standalone creditworthiness assessment (SCA) is based on a very high assessment of the business profile, satisfactory assessments of capital adequacy and the risk profile, as well as an adequate funding and liquidity position.
VTB Bank is the second largest Russian bank. It is a universal bank operating in Russia and also overseas. The controlling stake belongs to the state represented by the Federal Agency for State Property Management (60.9% of ordinary shares).
Key assessment factors
The very high assessment of extraordinary support from the state stems from: 1) shareholder and operational control exercised by the state; 2) previous provision of financial support to the Bank in the form of capital and liquidity; 3) the systemic importance of VTB Bank due to it servicing a substantial number of systemically important Russian enterprises and state-owned companies, as well holding a considerable share of the population’s money (over 15%).
The degree of dependence of the Bank and the state on homogeneous risk factors is assessed as average.
Taking the above into account, the credit rating of VTB Bank is on par with the Russian Federation.
The Bank’s very high business profile assessment is based first of all on its market positions and high diversification of operating revenues due to the universal nature of business (for 2020 the Herfindahl-Hirschman Index equaled 0.21). VTB Bank’s strategy includes strengthening all three global lines of business (corporate and investment banking, SME, and retail), ecosystem development (mainly based on mutually beneficial partnerships), business digitalization, and increasing efficiency. The macroeconomic prerequisites set out in the Bank’s strategy are generally adequate. The corporate governance system is assessed as strong.
The satisfactory capital position is based on moderate capital adequacy (as of July 1, 2021, N20.2 amounted to 10.2%), which allows the Bank to withstand an increase in the cost of credit risk ranging from 300–500 bps. At the same time, the averaged capital generation ratio (ACGR) calculated for the past five years is low at around 50 bps. This is due to regular payment of dividends and the Bank’s relatively poor financial performance in the post-crisis year of 2016 and the crisis year of 2020. The neutral assessment of operational efficiency is based on CTI (ratio of operating costs to operating income) and NIM (net interest margin) averaged for the past three years — around 40% and 3.7%, respectively.
The satisfactory risk profile assessment of VTB Bank is based on the acceptable quality of the loan portfolio (65.5% of assets) and adequate approaches to risk management. As of June 30, 2021, problem and potentially problem, in ACRA’s opinion, debt amounted to 9% of the loan portfolio (including Stage 3 loans under IFRS — 7.8%) amid a low, according to the Bank’s reporting, concentration of loans on the ten largest groups of borrowers — 15.9% of the portfolio. However, the share of outstanding loans provided to companies in high-risk industries is fairly high (it matches the size of the Bank’s common equity). The quality of contingent liabilities is adequate.
Market risk is moderate at 71% of common equity. At the same time, the risk profile assessment is constrained by non-core assets on VTB Bank’s balance sheet (mainly investments in subsidiaries and associated companies and investment real estate), amounting to around 22% of common equity.
The adequate liquidity position is based on the Bank’s sufficient capacity to fulfil its obligations over the short-term horizon, including taking into account the possibility of raising funds in the form of an irrevocable credit line from the Bank of Russia. The N26 and N28 capital adequacy ratios are fulfilled with a slight margin. At the same time, the average value of the short-term liquidity indicator has not exceeded 70% since the start of 2021.
The Bank’s resource base is satisfactory, given the moderate concentration on the largest source (funds from corporations and government bodies amount to 48% of liabilities) and the largest groups of creditors (as of June 30, 2021, the share of the largest group was 10.7% and the share of the top 10 was 29.5%). Funds from the Bank of Russia amounted to no more than 1% of liabilities as of June 30, 2021.
The state retaining shareholder control over the Bank;
Current business model maintained over the next 12–18 months;
Upholding leading market positions;
Dividends at no more than 50% of net IFRS profit.
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 of shareholder or operational control by the state accompanied by a significant decline in standalone creditworthiness.
Support: parity with the RF.
No outstanding issues have been rated.
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, 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.
A credit rating has been assigned to VTB Bank (PJSC) for the first time. 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 data provided by VTB Bank (PJSC), information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of VTB Bank (PJSC) and the financial statements of VTB Bank (PJSC) drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and VTB Bank (PJSC) participated in its assignment.
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 VTB Bank (PJSC). No conflicts of interest were discovered in the course of credit rating assignment.