The credit rating of Russian National Commercial Bank (hereinafter, RNCB, or the Bank) is based on the Bank’s satisfactory business profile, strong capital adequacy, satisfactory risk profile, and adequate funding and liquidity position. The rating is supported by the high level of extraordinary support from the state.
The credit rating of RNCB’s bond issue (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 Republic of Crimea and the city of Sevastopol; it ranks 26th in equity among Russian credit institutions. The Bank offers universal banking services and is wholly owned by the Russian Federation represented by the Federal Agency for State Property Management.
key assessment factors
High likelihood of extraordinary support being provided to the Bank by the state. RNCB is a dominating player on the Crimean peninsula, a market that is strategically important for the Russian Federation. The Bank’s bankruptcy would lead to a significant deterioration of the economic environment in the Republic of Crimea and pose certain risks to its population, since RNCB services a significant amount of social payments. At the same time, the Bank’s default would not incur substantial risks for federal or regional budgets because its share in budget revenues is small.
The state exercises shareholder and operational control over RNCB by defining its strategy and supporting it with capital. The Bank participates in carrying out government strategy in its region of presence by issuing loans for pivotal infrastructure projects in Crimea and Sevastopol.
The satisfactory business profile assessment takes into account the risks of regional specifics of RNCB’s business. Crimea remains the Bank’s key operational region, and is still avoided by the leading Russian banks. ACRA will continue to monitor changes to the competitive environment in the Republic of Crimea and Sevastopol in light of the toughening of sanctions in early 2022, which have also impacted a number of other banks, including industry leaders. RNCB’s strategy continues to involve active development of business on the Crimean peninsula. The Bank has a high diversification of its operating income thanks to a high volume of non-interest earnings and a range of different lending services.
RNCB’s strong capital adequacy position reflects its high capital adequacy ratios (N1.2 has declined slightly, but is still high at 17.4% as of January 1, 2022, and N20.2 was 16.6% at the end of 2021), 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 averaged capital generation ratio (ACGR) calculated for the past five years exceeds 100 bps). As in 2020, no dividends were paid in 2021. RNCB’s operational efficiency is assessed as adequate.
The risk profile assessment is satisfactory due to the acceptable quality of the loan portfolio (equal to around 61% of assets as of September 30, 2021), in which the share of problem loans has declined to around 7% since the start of 2021 (excluding loans covered by state guarantees and loans and claims that are fully covered by reserves), and the concentration on the 10 largest groups of borrowers is high (about 40% of the portfolio, excluding claims covered by state guarantees). The share of loans issued to companies from high-risk industries is insignificant (25% of common equity), and the quality of the portfolio of contingent liabilities is acceptable. Market and operational risks are low.
The adequate liquidity and funding position reflects the Bank’s fairly stable liquidity positions (as of September 30, 2021, the short-term liquidity shortage indicator (STLSI) was fulfilled with a margin in both the base case and stress scenarios, while the long-term liquidity shortage indicator (LTLSI) was about 85%), as well as the moderate concentration of the resource base. The share of funds of the largest depositor, the State Corporation Deposit Insurance Agency, amounted to around 12.5% of liabilities as of September 30, 2021, and the share of funds of the 10 largest groups of lenders (depositors) was about 20%. At the same time, funds held with the Bank by individuals and sole entrepreneurs, the main funding source of the Bank, form 64% of liabilities. No significant repayments are expected over the next 12–18 months.
key assumptions
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The state retaining control over the Bank;
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The Bank adhering to its current business model in the next 12–18 months;
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The Bank maintaining high diversification of operating income;
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Tier 1 capital adequacy ratios not lower than 12% 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 portfolio and/or lower concentration on the 10 largest groups of borrowers.
A negative rating action may be prompted by:
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Deteriorating competitive environment in the key region of the Bank’s presence;
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Significantly lower credit quality of assets;
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Significantly lower capital adequacy ratios;
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Higher concentration of liabilities on the largest source/lenders.
rating components
Standalone creditworthiness assessment (SCA): bbb+.
Support: state — SCA +3.
ISSUE RATINGS
Exchange-traded interest-bearing certified unregistered bond, 01 series (RU000A101FK0), maturity date: 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 have been assigned to RNCB and the bond (ISIN RU000A101FK0) issued by RNCB 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. 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 the credit rating to the above issue.
The credit ratings of RNCB and the bond (ISIN RU000A101FK0) issued by RNCB were published by ACRA for the first time on April 11, 2017 and February 20, 2020, respectively. The credit rating of RNCB and its outlook and the credit rating of the bond (ISIN RU000A101FK0) issued by RNCB 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 RNCB, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of RNCB drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit ratings are solicited, and RNCB 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 RNCB. No conflicts of interest were discovered in the course of credit rating assignment.
