The credit rating of SBI Bank LLC (hereinafter, the Bank) is determined by the high likelihood of extraordinary support from the parent entity (hereinafter, the supporting entity, or the SE), which has a moderately high level of creditworthiness. The Bank's Standalone Creditworthiness Assessment (SCA) has remained unchanged at 'bb-' due to moderately low business profile, satisfactory capital adequacy and risk profile assessments, and adequate funding and liquidity position.
The "Rating under revision: developing" status has been withdrawn following the assessment of the impact of potential barriers and limitations on the SE's ability to provide extraordinary support.
The Bank is a subsidiary of a foreign credit institution, and it is among top 150 banks in Russia. Its key lines of business include corporate lending and issuance of guarantees, while the bulk of the resource base is formed by customer funds.
KEY ASSESSMENT FACTORS
In its assessment of the likelihood of extraordinary support from the SE to the Bank, the Agency believes that the SE is still able to support the Bank, regardless a change in the Japanese Government's approach to regulation of the capital movement between Japan and the Russian Federation, including the requirement to obtain approval from the Japanese regulator for long-term capital investments. At the same time, further expansion of the sanctions mechanism may affect the SE's ability to provide any form of extraordinary support In case it is confirmed that support in any form is impossible, the assessment may be downgraded significantly.
The significance of other factors of support includes the approaches outlined in the Methodology for Analyzing Rated Entities Associated with a State or a Group and reflects the Agency's opinion that, if necessary, the supporting entity can provide funding to the Bank. ACRA takes into account that:
-
The SE and the Bank operate under a single brand, so that a potential default of the Bank may affect the reputation of the supporter;
-
The Bank is under full strategic and operational control by the SE that participates in the Bank's board of directors and approved strategic and financial development plans of the Bank;
-
The SE's creditworthiness is high compared to the Bank's standalone creditworthiness. The scale of the Bank's business is not a factor that could limit the effectiveness of potential support.
-
The financial and operational support regularly provided to the Bank, as well as ACRA's expectations regarding the likelihood and volume of support when necessary;
-
The SE's diversified structure, which allows the SE to increase the flexibility in its approaches to providing support.
-
The degree of dependence of the Bank and the SE on similar risk factors is assessed as low, since the SE operates in a jurisdiction other than the jurisdiction where the Bank is present.
The moderately low business profile score (bb-) is due to the low share occupied by the Bank in the Russian banking market, low diversification of its operating income, transparent ownership structure, and acceptable quality of management. The Bank's current strategy includes refocusing on transaction services and minimizing risks by way of reducing the loan portfolio, while customer funds will remain the main funding source.
The satisfactory capital adequacy assessment is explained by the negative average capital generation ratio (ACGR) caused by loss incurred in 2021 and 2022. The operating efficiency of the Bank is another negative rating factor, which is a result of high CTI (cost to income) values over the past three years due to the growth of operating expenses as part of the strategy implementation. However, currently, this indicator is seeming to improve.
As of April 1, 2023, the Bank complied with regulatory capital adequacy ratios with a significant margin. ACRA's stress test confirms that the Bank is still able to absorb credit risks (an increase in the cost of risk by more than 500 bps without violating capital requirements) at the expense of its equity over the 12–18-month horizon.
The satisfactory risk profile assessment reflects an acceptable quality of interbank exposures that represent the largest share of assets, and an increased share of non-performing loans in the loan book. The share of non-performing loans in the total loan portfolio of the Bank has increased significantly, mainly due to a substantial reduction of the loan portfolio in line with the Bank's current strategy aimed at risk minimization. The Agency notes a high coverage of non-performing loans with reserves. The risk management system of the Bank is assessed as satisfactory.
Adequate assessment of funding and liquidity. As of April 1, 2023, the Bank had a short-term liquidity surplus in both of ACRA's base case and stress scenarios. The long-term liquidity shortage indicator (LTLSI) calculated by ACRA is still assessed as strong.
The Agency notes a high concentration on the funds of the largest group of lenders and the ten largest groups of lenders. The Bank's liabilities mainly include corporate funds, which indicates a low diversification of the liabilities structure. In ACRA's opinion, these risks have been taken into account in the assessment of the concentration on the funds of the largest group of lenders, so that the Agency has not downgraded the funding factor assessment in this regard.
KEY ASSUMPTIONS
-
The supporting entity retaining its shareholder and operational control over the Bank.
-
N1.2 CAR at no lower than 12% in the next 12–18 months.
-
Maintaining the current development model approved by the supporting entity.
potential outlook or rating change factors
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:
-
Better operational efficiency of the Bank along with sustainably high capital adequacy metrics;
-
Higher diversification of operating incomes and stronger franchise of the Bank;
-
Significant decline of the share of non-performing loans in the loan book.
A negative rating action may be prompted by:
-
Lower propensity of the SE in supporting its business in Russia and changes in the Bank's ownership;
-
Emergence of factors that lead to inability of the SE to support the Bank with capital or liquidity;
-
Worse liquidity position;
-
Significantly worse capital adequacy metrics.
RATING COMPONENTS
SCA: bb-.
Adjustments: none.
Support: ACRA is of the opinion that the SE has the ability to provide extraordinary support in the amount sufficient for the Bank to maintain uninterrupted operations. Taking into account the support factors, the Bank's rating is assigned at four notches above the SCA.
issue ratings
There are no outstanding issues.
REGULATORY DISCLOSURE
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.
The credit rating of SBI Bank LLC was published by ACRA for the first time on July 11, 2018. The credit rating of SBI Bank LLC is expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by SBI Bank LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of SBI Bank LLC and the financial statements of SBI Bank LLC drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and SBI Bank LLC participated in its assignment.
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 SBI Bank LLC. No conflicts of interest were identified in the course of credit rating assignment.
