The credit rating of International Bank for Economic Co-operation (hereinafter, IBEC, or the Bank) is based on assessments of rating factors, including a vulnerable business profile, strong capital adequacy, weak risk profile assessment, and an adequate assessment of funding and liquidity. At the same time, the factor of support from the Bank’s shareholder countries does not influence IBEC’s final rating.
Headquartered in Moscow, IBEC is an international financial Institution with a mandate to facilitate international trade, economic development, and collaboration among its member states and the rest of the world.
In 2023, the requests made by five EU countries that previously announced their intent to exit IBEC were satisfied. According to IBEC’s charter documents, the withdrawal of less than two thirds of the shareholders does not lead to initiating the Bank’s liquidation. ACRA continues to believe that IBEC’s liquidation is unlikely.
KEY ASSESSMENT FACTORS
The Bank’s business profile is assessed as vulnerable. As per its mandate, IBEC focuses on developing the economies and foreign trade links of its member states. Previously, the Bank’s business was mainly focused on counterparties from the European Union. The exit of EU countries from IBEC’s pool of shareholders resulted in the need to find new markets for the Bank. The Bank is currently putting together a new strategy, which will enable it to continue carrying out the objectives as per its mandate. Uncertainty stemming from the change in strategy puts pressure on the business profile assessment and IBEC’s credit rating under the international scale.
Strong capital adequacy position. IBEC’s capital adequacy is high, which allows it to withstand the potential risks of a significant deterioration of asset quality. The size of assets and contingent liabilities of the Bank grew in 2023, but remains comparatively low compared to the indicators for 2020 and 2021. This has a positive impact on the capital adequacy assessment, which as of December 31, 2023 amounted to around 53%. Gradual recovery of the volumes of the Bank’s business may lead to a significant decline in capital adequacy in the future, although the Agency expects this indicator to remain strong in the medium term.
The process according to which shareholders exit the capital of the Bank involves a gradual return of the initial contributions of the member states, which will take place over 20 years. The reduction of IBEC’s capital will take a long time and may be offset by future profits. In this regard, ACRA does not IBEC’s capital adequacy ratios to decline sharply as a result of the shareholders’ exit.
The Bank recorded a positive financial performance in 2023. Given the large loss incurred by the Bank in 2022, average return on equity for the past three years is -6.6%. At the same time, ACRA assumes that this loss, which was related to sanctions and other restrictions imposed on Russia, is a one-off event and will not impact the Bank’s ability to deliver positive financial results in the future. Therefore, the Agency has not applied a negative adjustment to the assessment of IBEC’s capital position.
The Bank’s risk profile assessment is weak. In 2023, the total volume of the Bank’s assets grew after a considerable decline in 2022. Growth was largely driven by investments in securities and interbank trade finance loans. At the same time, the average quality of assets remains quite high, while the share of NPL90+ is low.
The high territorial concentration of IBEC’s assets has a serious negative impact on its risk profile assessment. The withdrawal of the EU countries and certain difficulties in working with European counterparties forced the Bank to transfer a significant portion of assets to the jurisdictions of other shareholder countries, whose shares increased as a result. As of December 31, 2023, the maximum share of IBEC’s assets in a single country exceeded 30%, which serves as grounds for the weak assessment of the Bank’s risk profile. In addition, receivables from the ten largest groups of related borrowers (counterparties, issuers) to the total capital of IBEC exceed 100%. Further growth of this metric may lead to a lower risk profile assessment.
The Bank’s funding and liquidity position remains adequate. The overall diversification of liabilities remains moderate, and funds raised from other banks amounted to less than 20% of IBEC’s total liabilities as of December 31, 2023. Furthermore, the Agency notes a considerable increase in short-term liabilities related to the resumption of repo transactions between the Bank and Russian organizations. At the same time, highly liquid assets significantly exceeded short-term liabilities as of December 31, 2023, while the share of these assets on the balance sheet amounted to more than 20%.
The assessment of support from shareholder countries does not influence the Bank’s credit rating, which is determined based on its standalone creditworthiness assessment (SCA). IBEC’s credit rating is AAA(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 Scales.
KEY ASSUMPTIONS
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Maintaining the Bank’s core functions;
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Maintaining the capital adequacy ratio above 25%;
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Maintaining asset diversification indicators at the current level;
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Profitability of operations;
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Maintaining a comfortable liquidity position.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS UNDER THE INTERNATIONAL SCALE
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Adaptation to changing circumstances followed by a sustainable improvement of the assessments of rating factors;
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Lower concentration of the Bank’s assets by countries and groups of borrowers (counterparties, issuers).
A negative rating action may be prompted by:
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Lower assessment of capital adequacy that results in a stable decline of the Bank’s return on equity;
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Higher concentration by groups of borrowers (counterparties, issuers);
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Growth of impaired assets;
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Deterioration of liquidity position.
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 negative rating action may be prompted by:
- Significant downgrade of IBEC’s credit rating under the international scale.
RATING COMPONENTS UNDER THE INTERNATIONAL SCALE
SCA: bbb+.
Adjustments: none.
ISSUE RATINGS
Exchange-traded bonds of International Bank for Economic Co-operation, series 001P-02 (RU000A101RJ7), maturity date: June 3, 2030, issue volume: RUB 5 bln — AAA(RU).
Rationale. The credit rating of the issue of series 001P-02 bonds (RU000A101RJ7) is equivalent to that of IBEC. The issue represents senior unsecured debt of IBEC. 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 IBEC in terms of priority.
REGULATORY DISCLOSURE
The credit rating has been assigned to International Bank for Economic Co-operation under the international scale based on the Methodology for Assigning Credit Ratings under the International Scale to International Financial Institutions. The credit ratings have been assigned to International Bank for Economic Co-operation and the bond issue of International Bank for Economic Co-operation (RU000A101RJ7) 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 Scales and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.
The credit ratings of International Bank for Economic Co-operation under the international scale and the national scale for the Russian Federation were published by ACRA for the first time on May 18, 2020. The credit rating assigned under the national scale for the Russian Federation to the bond issue of International Bank for Economic Co-operation (RU000A101RJ7) was published by ACRA for the first time on June 15, 2020. The credit ratings and their outlooks, as well as the credit rating of the bond issue listed above, 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 International Bank for Economic Co-operation, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of International Bank for Economic Co-operation. The credit ratings are solicited and International Bank for Economic Co-operation 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 International Bank for Economic Co-operation. No conflicts of interest were discovered in the course of credit rating assignment.
