The credit rating of Interstate Bank (hereinafter, ISBank, or the Bank) is based on the Bank’s standalone creditworthiness assessment (SCA). ACRA notes 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, as well as a fairly strong liquidity position and a balanced funding structure.
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. However, the Bank is not involved in lending.
key assessment factors
The business profile assessment is based on satisfactory indicators for quality of strategy, corporate governance, organizational structure and operational transparency. 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 remained high as of December 31, 2022. Furthermore, the Bank increased the size of its capital in 2022 by generating profit and does not plan to distribute it or actively increase RWA in the near future. ISBank recorded high profitability due to growth of profits in 2022, but part of profits in the aforementioned year was created by what can be seen as one-off revenues.
When assessing ISBank’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. However, the character of ISBank’s asset-related transactions may lead to growth of the significance of sanctions risks for the Bank’s activities.
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. ACRA notes the continued increased share of funds from other banks in the overall structure of liabilities. However, the Agency believes that this does not affect the Bank’s creditworthiness. Liquidity risks related to the high share of these 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 relatively high importance of ISBank’s activities for the shareholder countries, (2) the equality of shareholders in the management of ISBank, and (3) the moderate 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
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Maintaining systemic importance to the key shareholder countries;
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Maintaining strong asset quality;
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Maintaining current capitalization levels within the 12 to 18-month horizon;
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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:
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Lower concentration of asset-related transactions on a single jurisdiction and the largest counterparties;
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Significant decline of the share of assets whose value is sensitive to stock market volatility;
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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:
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Decline of the ability of the Bank’s counterparties to fulfill obligations, the value of which is expressed in Russian currency;
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Lower capacity of the key shareholder to support organizations related to the Bank;
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Decrease of the Bank’s systemic importance for key shareholder countries;
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Deterioration of capital adequacy and risk profile assessments;
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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:
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Downgrade of ISBank’s credit rating under the international scale;
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Lower systemic importance of ISBank to the key shareholder.
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. 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. Due to the specific nature of the functioning of Interstate Bank, paid-in capital was calculated taking into account other sources similar to it. This is a deviation from the Methodology for Assigning Credit Ratings under the International Scale to International Financial Institutions.
ACRA provided additional services to Interstate Bank. No conflicts of interest were discovered in the course of credit rating assignment.
