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 Bank’s owner.
The credit rating outlook has been changed to Developing, on the one hand, to reflect a trend toward an improvement of the business profile as a result of higher diversification of the structure of operating income, and on the other hand, due to the emergence of uncertainty regarding the Bank’s development strategy and the impact of external support on the credit rating as a result of a possible change in ownership over the next 12 to 18 months.
RNCB is the largest bank in the Republic of Crimea and the city of Sevastopol and is among Russia’s 30 largest banks in terms of equity. The Bank offers universal banking services.
key assessment factors
High likelihood of extraordinary support being provided to the Bank by its owner. RNCB is a dominating player in the Crimean peninsula, a market that is strategically important to its owner. The Bank’s bankruptcy may lead to 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 its owner’s budget or the budgets of other regions where RNCB operates because its share in budget revenues is small.
The current owner exercises shareholder and operational control over RNCB by defining its strategy and supporting it with capital. The Bank participates in carrying out the development strategy of its region of presence by issuing loans for pivotal infrastructure projects in the Republic of Crimea and Sevastopol.
It is planned to transfer the Bank to a new controlling owner in 2023. ACRA has reflected possible changes to the Bank’s strategy and the assessment of the impact of support on RNCB’s credit rating by changing the rating outlook to Developing.
The satisfactory business profile assessment takes into account the risks of regional specifics of RNCB’s business. The Bank’s strategy continues to focus on active development of business in the Crimean peninsula. ACRA notes that the previous low level of competition in the Bank’s key region of presence offset the risks of regional concentration. However, industry leaders are gradually ramping up offers of their products in the Crimean peninsula, which may affect RNCB’s position in this market. The Bank has sufficiently high diversification of operating income thanks to a high volume of non-interest earnings and a range of different lending services. ACRA assesses the Bank’s ownership structure as transparent. The change in ownership is unlikely to impact this assessment.
RNCB’s strong capital adequacy position is confirmed by its high capital adequacy ratios, which allow the Bank to withstand an increase in credit risk by more than 500 bps. Besides a capital injection, the capital position is also supported by the Bank’s capacity to generate capital. At the same time, in 2022, RNCB continued to increase the profitability of RWA, including by growing its net interest margin. The Bank’s operational efficiency is assessed as adequate.
The risk profile assessment is satisfactory due to the acceptable quality of the loan portfolio and the relatively high concentration on the 10 largest groups of borrowers (ACRA did not take into account claims covered by state guarantees when assessing concentration). ACRA notes that the share of loans provided by the Bank to companies from high-risk industries has increased, but in general, the concentration on this segment continues to be acceptable, as is the quality of the portfolio of contingent liabilities. Market and operational risks are low.
The adequate funding and liquidity assessment reflects the Bank’s fairly stable liquidity positions, as well as the moderate concentration of the resource base, the main source of which continues to be funds held at the Bank by individuals and sole proprietors, which form 64% of the Bank’s liabilities. No significant repayments are expected over the next 12–18 months.
key assumptions
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An whose creditworthiness matches the sovereign’s creditworthiness retains control of 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 Developing outlook assumes that the rating may stay unchanged, be upgraded, or downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Lower share of problem loans in the loan portfolio and/or lower concentration on the 10 largest groups of borrowers;
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Improved assessment of the business profile while maintaining competitive positions in the key region of presence and a high level of diversification of operating income;
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Higher assessment of the likelihood of extraordinary support due to the change in ownership.
A negative rating action may be prompted by:
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Deteriorating competitive environment in the Bank’s key region of 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 or lenders;
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Lower assessment of the likelihood of extraordinary support due to the change in ownership.
rating components
Standalone creditworthiness assessment (SCA): bbb+.
Support: SCA plus three notches.
issue ratings
There are no outstanding issues.
regulatory disclosure
The credit rating has been assigned to Russian National Commercial Bank 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 credit rating of Russian National Commercial Bank was published by ACRA for the first time on April 11, 2017. The credit rating of Russian National Commercial Bank and its outlook is 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 Russian National Commercial Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of Russian National Commercial Bank drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and Russian National Commercial Bank participated in its assignment.
Disclosure of deviations from approved methodologies: when assessing the quality of the loan portfolio as per the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation, ACRA did not view individual claims, which due to their specific nature do not affect the Bank’s standalone creditworthiness as distressed.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to Russian National Commercial Bank. No conflicts of interest were discovered in the course of credit rating assignment.
