ACRA has affirmed the credit rating of JSC “Bank DOM.RF” (hereinafter, Bank DOM.RF, or the Bank) at AA(RU), outlook Stable, and the credit rating of the Bank’s series 001P-01 bond (RU000A105VR3) at AA(RU).
The Agency has upgraded the Bank’s standalone creditworthiness assessment (SCA) due to the upgrade of the liquidity and funding factor assessment from satisfactory to adequate, while the business profile assessment has remained sustainable, capital position — strong, and risk profile — satisfactory. ACRA notes the high likelihood of support to Bank DOM.RF from its shareholder (hereinafter, the Supporting Entity, the SE, or the Group) in the form of equity or liquidity. On the other hand, due to the continuing and fast expansion of the Bank’s business the credit rating is determined, in the Agency’s view, mostly by the standalone creditworthiness that is supported by sustainable profits; therefore ACRA has reduced the number of notches added to the SCA from four to three.
Bank DOM.RF, a specialized credit institution, is the authorized bank in the field of housing construction. The Bank is one of the 15 largest Russian credit institutions by equity and is represented in most of Russia’s federal districts.
key assessment factors
High level of support for Bank DOM.RF from the Supporting Entity. In ACRA’s opinion, if necessary the SE will provide the Bank with sufficient short-term and long-term funding and capital injections in view of the following:
-
The business of Bank DOM.RF is highly important for the implementation of the Group’s development strategy;
-
The SE exercises complete shareholder and operational control over the Bank, and due to this, a decline in Bank DOM.RF’s ability to continue operating in full will also impact the stability of the SE;
-
The Bank and the Group operate under the same brand and therefore a default of Bank DOM.RF would be associated with the SE;
-
Almost all the SE’s financial resources are currently held in the Bank, and its additional capitalization, as a rule, is part of additional capitalization of the Group.
At the same time, ACRA notes the continuing significant growth of the Bank’s business scale compared to the Group. Taking the above into account, the credit rating of Bank DOM.RF has been set at AA(RU), i.e. three notches above its SCA (against four notched at the date of the preceding rating action with respect to the Bank’s credit rating).
The Bank’s sustainable business profile (bbb+) reflects its stronger market positions in both project financing and mortgage lending segments. Over the past few years, the Bank’s strategy looked ambitiously but it was implemented successfully. Regardless that Bank DOM.RF’s niche is rather narrow due to specifics of its business, the operating income diversification has remained quite high. The corporate governance quality matches the scope of the Bank’s business, and its ownership structure is transparent.
Bank DOM.RF’s strong capital position stems from it maintaining capital adequacy ratios at a comfortable level, which is achieved mostly through regular equity injections by the SE (including a RUB 87 bln injection in August 2023 and the shareholder’s equity contribution of RUB 20 bln in May 2022). The ability to generate capital is assessed as adequate (the averaged capital generation ratio, ACGR, is about 100 bps). The current capital adequacy metrics and stable profitability enable Bank DOM.RF to withstand significant growth of the cost of credit risk (over 500 bps). At the same time, CTI (cost-to-income) and NIM (net interest margin) calculated by ACRA for the past three years correspond to the average for the group of peer banks (39% and 3.8%, respectively).
The satisfactory risk profile assessment of Bank DOM.RF is supported primarily by the relatively high quality of the loan portfolio, which has a low share of non-performing loans (as of June 30, 2023, 1.8% of IFRS 9 Stage 3 loans, including loans granted before the control over the Bank was transferred to the SE and well-covered by reserves), and low concentration on the 10 largest groups of borrowers. At the same time, ACRA notes that the significant volume of lending to construction companies and rapid growth of the loan portfolio in general continue to have a negative impact on the risk profile assessment. The level of market and operational risks is low.
The liquidity and funding assessment has been upgraded from satisfactory to adequate, since the Bank has maintained a significant share of the stable funding sources, including mostly shareholder’s funds (equity and deposits) and funds held in escrow accounts. The Bank’s long-term liquidity shortage indicator (LTLSI) exceeds the 85% threshold set forth by ACRA’s methodology and therefore is assessed as strong, and the value of short-term liquidity shortage indicator (STLSI) is also higher than required in ACRA’s both base case and stress scenarios. Assessing the Bank’s liquidity position, ACRA takes into account the rather predicable nature of outflows of funds and the possibility of prolonging a number of deposits of the largest groups of lenders, including related parties.
Key assumptions
-
Bank DOM.RF maintaining the current business model in the next 12–18 months.
-
N1.2 CAR above 10% in the next 12–18 months.
-
The Bank maintaining its capacity to make sustainable profits.
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:
- Stabilization of the loan portfolio’s growth rate while maintaining its quality and/or a significant decline of the share of loans issued to construction companies in the portfolio.
A negative rating action may be prompted by:
-
Lower ability of the SE to provide extraordinary support to Bank DOM.RF because of rapid growth in the scale of its operations;
-
Lower capitalization of the Bank and/or deterioration of its ability to generate capital;
-
Lower asset quality as a result of an increase of non-performing loans and/or an increase of concentration on the largest groups of borrowers;
-
Deterioration of liquidity and/or funding position.
RATING COMPONENTS
SCA: а.
Adjustments: none.
Support: ACRA is of the opinion that if necessary, the Supporting Entity will provide the Bank with extraordinary support in the form of equity and/or liquidity. Taking this into account, the Bank’s credit rating is set at three notches above the SCA.
issue ratings
Bank DOM.RF, series 001Р-01 (RU000A105VR3), maturity date: February 18, 2025, issue volume: RUB 5 bln — AA(RU).
Credit rating rationale. The issue represents senior unsecured debt of Bank DOM.RF. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as equal to other existing and future unsecured and unsubordinated debt obligations of the Bank in terms of priority. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of JSC “Bank DOM.RF” and is set at AA(RU).
regulatory disclosure
The credit ratings have 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. In assigning the credit rating to the bond issue (RU000A105VR3) of JSC “Bank DOM.RF”, the Methodology for Assigning Credit Ratings to Financial Instruments Under the National Scale for the Russian Federation was also applied.
The credit rating of JSC “Bank DOM.RF” and the credit rating of the bond issue (RU000A105VR3) of JSC “Bank DOM.RF” were published by ACRA for the first time on June 13, 2017 and February 21, 2023. The credit rating of JSC “Bank DOM.RF” and its outlook, and the credit rating of the bond issue (RU000A105VR3) of JSC “Bank DOM.RF” are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by JSC “Bank DOM.RF”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated financial statements of JSC “Bank DOM.RF” and the financial statements of JSC “Bank DOM.RF” drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit ratings are solicited and JSC “Bank DOM.RF” 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.
ACRA provided additional services to JSC “Bank DOM.RF”. No conflicts of interest were discovered in the course of credit rating assignment.
