The credit rating of JSC “Denizbank Moscow” (hereinafter, Denizbank, or the Bank) is based on the Bank’s fairly high standalone creditworthiness assessment (SCA) that stems from the adequate business profile assessment, strong capital adequacy, satisfactory risk profile, and adequate funding and liquidity position.
Denizbank is a medium-sized Russian credit institution that is the subsidiary of a foreign bank, with its sole office in Moscow. The Bank’s core line of business includes comprehensive services (including lending and project financing, guarantees and letters of credit, cash and settlement services) to companies involved in export and import operations between Russia and Turkey and Turkish entities operating in Russia, most of whom are customers of the Bank’s parent entity (hereinafter, the Group).
KEY ASSESSMENT FACTORS
The adequate business profile (bbb) stems primarily from Denizbank’s strong franchise in servicing the Group’s corporate clients in Russia. Operating income diversification is relatively low due to the nature of the Bank’s business, although over the past 12 months, this indicator has improved due to growth in income from foreign currency operations. The system of corporate governance and strategic planning is assessed as adequate, given the significant regulatory control exercised by the Group over the Bank’s operations, and many years of successful work experience of top managers in both the Bank and the Group.
The significant loss absorption buffer is driven by Denizbank maintaining a high level of common equity under regulatory standards, which allows it to withstand growth in the cost of credit risk by more than 500 bps. At the same time, the averaged capital generation ratio (ACGR) has declined amid considerable dividend payouts over the past 12 months, which the Bank decided to perform due to growth in its profitability. The operational efficiency is assessed as adequate, based on the low values of three-year average CTI and a moderate value of NIM.
The satisfactory risk profile assessment is underpinned by the sufficiently high quality of the loan portfolio (Stage 3 and NPL90+ loans are absent) and a moderate proportion of loans granted to companies operating in high-risk industries. At the same time, the concentration on the ten largest groups of clients continues to be extremely high, but is somewhat offset by guarantees issued by the Group for a number of loans.
In the Agency’s opinion, the risk profile assessment is also influenced by growth in the volume of foreign currency liquidity placed in the countries where the Group operates. The quality of the securities portfolio and off-balance sheet contingent liabilities is assessed as adequate.
The adequate funding and liquidity position is due to Denizbank’s fairly strong ability to perform its payment obligations within the 90-day horizon, given the surplus of short-term liquidity in both the base case and stress scenarios of ACRA, as well as the possibility of instant attraction of funds through repurchase transactions. No imbalances are observed for longer periods.
The Bank’s resource base is characterized by sharply positive dynamics of funds of resident legal entities and a decrease in the amount of funds raised from the Group over the past 12 months, which led to an increase in its concentration by individual sources of funding. In ACRA’s opinion, these risks are taken into account in the assessment of the concentration on funds held by the largest groups of lenders, which is why the Agency has not downgraded the funding sub-factor assessment in this regard.
The neutral assessment of support reflects the results of a comparison of the creditworthiness of the Bank and the Group.
KEY ASSUMPTIONS
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Adhering to the current business model within the 12 to 18-month horizon;
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Maintaining the Bank’s market positions in equity;
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Common capital adequacy ratio (N1.2) above 12% within the 12 to 18-month horizon.
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:
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Significantly lower concentration of the loan portfolio on the largest clients amid a continued low share of potential non-performing loans in the loan portfolio;
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Lower volume and concentration of foreign currency funds placed in other jurisdictions.
A negative rating action may be prompted by:
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Significant growth in the share of non-performing loans in the Bank’s loan portfolio;
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Growing volume of market risk taken by the Bank;
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Higher concentration of the resource base on the largest source and/or the largest lenders;
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The need to provide financial resources to the Group.
RATING COMPONENTS
SCA: a-.
Adjustments: none.
Support: none.
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 JSC “Denizbank Moscow” was published by ACRA for the first time on September 6, 2018. The credit rating and its outlook are 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 JSC “Denizbank Moscow”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC “Denizbank Moscow” and the financial statements of JSC “Denizbank Moscow” drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and JSC “Denizbank Moscow” 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 no additional services to JSC “Denizbank Moscow”. No conflicts of interest were discovered in the course of credit rating assignment.
