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 lines of business include comprehensive 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), and interbank market investments.
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 and subject to increased volatility due to high incomes from foreign currency operations over the past two years. 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 strong capital adequacy position is driven by, on the one hand, moderate capital adequacy under regulatory standards (N1.2 was 10.5% as of April 1, 2024 and averaged 14.6% over the past 12 months) and, on the other hand, declining credit risks accepted by the Bank, which allows it to maintain the risk absorption capacity of over 500 bps in the 12–18-months horizon and comply with capital adequacy standards. At the same time, the five-year averaged capital generation ratio (ACGR) continues to decline amid considerable dividend payouts over the past 24 months, which the Bank decided to make due to growth in its profitability backed by higher inflow of client funds and increased income from foreign currency transactions. 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 associated with the sufficiently high quality of the loan portfolio (Stage 3 and NPL90+ loans are absent) whose share has declined below 10% of assets. 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 continuing growth in the volume of foreign currency liquidity placed in the countries where the Group operates. As of April 1, 2024, the quality of the securities portfolio and off-balance sheet contingent liabilities is assessed as adequate, and the volume of these items has also declined significantly.
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 comfortable metrics of short-term liquidity in both the base case and stress scenarios of ACRA. No imbalances are observed for longer periods.
The Bank’s resource base is characterized by active positive dynamics of corporate funds over the past 12 months, which led to an increase in the concentration of this source of funding (92.4% of liabilities). 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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Common capital adequacy ratio (N1.2) above 8% 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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Stronger competitive positions of the Bank in the Russian banking market;
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Lower volume and concentration of foreign currency funds placed in other jurisdictions amid non-declining quality of other assets.
A negative rating action may be prompted by:
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Lower propensity of the Group to maintain its business in Russia;
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Worse capital adequacy metrics and/or worse capital generating ability due to, among others, dividend payouts;
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Significant growth in the share of non-performing loans in the Bank’s loan portfolio;
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Higher concentration of the resource base on the largest source and/or the largest lenders.
RATING COMPONENTS
SCA: a-.
Adjustments: none.
Support: not applied due to a higher SCA of the Bank.
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 Supporting Entity’s Creditworthiness Assessment has been determined based on the principles of the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the International Scale, Methodology for Mapping Credit Ratings Assigned under ACRA’s International Scale to Credit Ratings Assigned under ACRA’s National Scales, and the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale.
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. 6406-U dated April 10, 2023. 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.
