The affirmation of the credit rating of Interstate Bank (hereinafter, ISBank, or the Bank) at BBB+ under the international scale primarily reflects ACRA’s opinion on the Bank’s standalone creditworthiness.

When determining the Bank’s standalone creditworthiness assessment (SCA), ACRA noted the high level of its capitalization, relatively high quality of assets with a significant concentration of credit risk on one jurisdiction of presence and major counterparties, exposure of certain financial indicators to the influence of market risk, as well as a fairly strong liquidity position with a moderate share of short-term interbank loans in the funding structure on average.

At the same time, ACRA takes into account the fact that over 90% of ISBank’s assets and liabilities are denominated in Russian rubles. As a result, the Bank’s standalone creditworthiness, as well as the ability of the Russian Federation as its key shareholder to provide support, have low exposure to the current operating environment risks, and this is taken into account in the affirmation of the credit rating under the national scale for the Russian Federation, which has been determined as per the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation.

ISBank was founded in 1993 by several countries of the Commonwealth of Independent States (CIS), some of which later formed the Eurasian Economic Union (EAEU) in order to facilitate trade and transactions, as the newly independent states created their own currencies while maintaining close economic ties with Russia. The Bank provides settlement services mainly for trade among CIS countries, undertakes research and economic studies aimed at supporting the central banks of the shareholder countries, and coordinates monetary policies.

key assessment factors

The Bank’s management quality, strategy, and operational transparency are satisfactory. The Bank’s Council consists of board members from the central banks of the shareholder countries and the chairperson position is on a rotating basis for a maximum term of two years. The management of the Bank has a proven track record of successfully running financial institutions. The Bank has enjoyed the status of de facto settlement institution among the founding member countries since its inception. As per its strategy, the Bank focuses on providing a reliable and efficient settlement platform for the central banks and other financial institutions of the shareholder countries. In light of current geopolitical events, ACRA expects the amount of USD settlements between member countries to continue declining, and the Bank’s role in engaging with member countries may grow due to this.

Strong capital adequacy. According to the Bank’s data and ACRA’s estimates, capital adequacy was still high as of June 30, 2022. Furthermore, the Bank increased the size of its capital in H1 2022 by generating profit and does not plan to actively increase RWA in the near future. ISBank has stable profitability, but part of profits in 2022 was created by what can be seen as one-off revenues.

When assessing the Bank’s risk profile, ACRA mainly takes into account the high concentration of the Bank’s assets on a single jurisdiction of presence and the largest counterparties, which is the reason for the relatively low assessment of the sub-factor. The Bank’s assets (funds placed with credit institutions and securities) are made up of claims to organizations with high financial stability. The risks of failure to pay borne by these instruments are limited given the low foreign currency component, as well as the fact that their credit quality is equal to the sovereign risk. At the same time, revaluation of these securities may have a negative impact on the Bank’s capital. However, the character of ISBank’s asset-related transactions may lead to growth in the significance of sanctions risks for the Bank’s activities.

ACRA notes the relative independence of ISBank’s operating system. In particular, the Bank’s IT platform allows it to perform current operations securely and smoothly. Consequently, ACRA assesses the possibility of operating risks arising due to a possible strengthening of sanctions pressure on companies registered in Russia as relatively low.

The Bank’s liquidity and funding position is adequate. In line with a business model focused on multilateral settlement, the Bank’s liabilities consist mostly of short-term and on-demand deposit accounts. Other credit institutions and non-financial institutions deposit funds with the Bank, which supports the diversification of its resource base. In the period since its last rating action, ACRA noted a temporary increase in the amount of funds raised from other financial institutions. However, the Agency believes that this does not affect the Bank’s creditworthiness. Liquidity risks related to the high share of short-term liabilities are largely offset by the considerable volume of liquid assets.

ACRA assesses support from the shareholder countries taking into account the following factors: (1) the generally high importance of ISBank’s activities for the shareholder countries and (2) the moderate average creditworthiness assessment of the shareholder countries. ACRA believes that the Bank’s largest shareholder, the Russian Federation, views the importance of the Bank’s activities as high, especially in terms of promoting settlements in national currencies of the shareholder countries.

ISBank’s credit rating is AA+(RU), outlook Stable, under the national scale for the Russian Federation as per the Methodology for Mapping Credit Ratings Assigned under ACRA’s International Scale to Credit Ratings Assigned under ACRA’s National Scale for the Russian Federation.

key assumptions

  • Maintaining systemic importance to the key shareholder countries;

  • Maintaining strong asset quality;

  • Maintaining current capitalization levels within the 12 to 18-month horizon;

  • Supporting a high level of liquidity.

Potential outlook or rating change factors under the international scale

The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Lower concentration of asset-related transactions on a single jurisdiction and the largest counterparties;

  • Significant decline of the share of assets whose value is sensitive to stock market volatility;

  • Increased creditworthiness of the key shareholder countries with maintained systemic importance of the Bank for said shareholder countries.

A negative rating action may be prompted by:

  • Decline of the ability of the Bank’s counterparties to fulfill obligations, the value of which is expressed in Russian currency;

  • Lower capacity of the key shareholder to support organizations related to the Bank;

  • Decrease of the Bank’s systemic importance for key shareholder countries;

  • Deterioration of capital adequacy and risk profile assessments;

  • Deterioration of liquidity and funding positions.

POTENTIAL outlook or rating change factors under the national scale for the Russian Federation

The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Upgrade of ISBank’s credit rating under the international scale.

A negative rating action may be prompted by:

  • Downgrade of ISBank’s credit rating under the international scale.

RATING COMPONENTS UNDER THE INTERNATIONAL SCALE

SCA: bbb+.

Adjustments: there are no additional adjustments. Taking into account the current situation, the credit rating of ISBank is equal to the SCA.

regulatory disclosure

The credit rating has been assigned to Interstate Bank under the international scale based on the Methodology for Assigning Credit Ratings under the International Scale to International Financial Institutions and Other Supranational Development Institutions. The credit rating has been  assigned to Interstate Bank under the national scale for the Russian Federation based on the Methodology for Mapping Credit Ratings Assigned under ACRA’s International Scale to Credit Ratings Assigned under ACRA’s 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 credit ratings of Interstate Bank under the international scale and the national scale for the Russian Federation were published by ACRA for the first time on March 3, 2020. The credit ratings and their outlooks are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.

The credit ratings were assigned based on data provided by Interstate Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of Interstate Bank. The credit ratings are solicited, and Interstate Bank participated in their assignment.

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

Disclosure of deviations from the approved methodologies. When assessing the level of potential support to the Bank from the member countries, ACRA considered the Russian Federation as the key shareholder and the most likely source of support for the rated entity. In connection with this, ACRA did not use the weighted average creditworthiness assessment of the shareholder countries. This is a deviation from the Methodology for Assigning Credit Ratings under the International Scale to International Financial Institutions and Other Supranational Development Institutions.

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

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Analysts

Valeriy Piven
Managing Director, Head of Financial Institutions Ratings Group
+7 (495) 139 04 93
Mikhail Nikolaev
Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 179
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