The credit rating of JSC “ALFA-BANK” (hereinafter – Alfa-Bank, the Bank) is based on its strong business profile, adequate capital reserves, adequate liquidity and funding position, and satisfactory risk profile. The rating is further supported by the Bank’s moderate systemic importance for the Russian financial market.
Alfa-Bank is a universal nation-wide bank focusing on lending to large- and medium-sized businesses and individuals, and on transactional services to customers. As of October 1, 2018, the Bank was the 6th largest bank in terms of assets, and the 4th in terms of capital raised from individuals. The Bank is a part of ABH Financial Limited (the Group).
Key rating assessment factors
Strong business profile assessment (a). The Bank is marked by its strong franchise in lending and transactional services provided to businesses and individuals, and moderate diversification of its operating income. High quality corporate governance and adequate development strategy are also positive for the rating assessment.
Adequate loss absorption cushion. Due to the increase in common equity through the issuance of subordinated Eurobonds, as well as the growth in net income under RAS, the regulatory capital adequacy ratio N1.2 reached 11.23% as of October 1, 2018 (Tier-1 amounted to 17.6% as of July 1, 2018), which boosts the Bank’s ability to withstand the cost of credit risk increase (by 400–500 bps in ACRA stress scenario). At the same time, Alfa-Bank retains strong capital generation capacity (100–150 bps). The factor assessment takes into account high susceptibility of the Bank's financial performance under RAS to currency asset revaluation.
Satisfactory risk profile assessment. ACRA highlights the improvement of the Bank’s loan portfolio quality: the share of NPL90+ declined to 1.7% of the total loan portfolio as of July 1, 2018, while the share of potentially problem (in terms of ACRA methodology) loans equaled to 4.9% thereof (based on the analysis of top 50 borrower groups). A negative impact on the Bank's risk profile assessment is exerted by a high share of non-collateralized loans (which is counter-balanced by the dominating role the largest corporates with high credit quality play among other borrowers) coupled with higher growth rate of the loan portfolio as compared to the average of peer banks (+13.5% for 12 months preceding July 1, 2018).
Adequate liquidity position. Under ACRA base case scenario, the Bank can withstand an outflow of customer funds with a moderate margin, due to a high share of current accounts (49% of customer funds). At the same time, ACRA points out the increase of the short-term liquidity shortage indicator (STLSI) to -13% of liabilities in the stress scenario, however, the Agency emphasizes that the average liquidity coverage ratio (LCR) exceeds 90% through 2018. The long-term liquidity position is assessed as adequate, as the long-term liquidity shortage indicator (LTLSI) reached 79% in early September 2018.
The funding structure is well-balanced due to an adequate diversification by funding source (the share of individuals’ funds was 39.9% as of July 1, 2018) and lenders (the share of the largest lender was 3.3%, and the share of top 10 lenders was 11.2% of liabilities).
Moderate systemic importance. In our opinion, in case the Bank defaults, this may lead to a systemic crisis in certain segments of the Russian banking market and, consequently, may have a significant negative impact on the Russian financial sector and entire economy. Alfa-Bank is on the Bank of Russia’s list of systemically important credit institutions.
Key assumptions
- Maintaining strong competitive positions in key business segments;
- Loan portfolio growth rate within 10-15%;
- Cost of credit risk within 1%;
- Net interest margin in the range of 4.0-4.5%;
- Tier-1 capital adequacy (N1.2) is above 8% within the 12 to 18-month horizon;
- Maintaining the current funding structure.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the
12 to 18-month horizon.
A positive rating action may be prompted by:
- A decline of the share of problem loans in the loan portfolio below 5%;
- A substantial growth of the share of collateralized lending.
A negative rating action may be prompted by:
- Deterioration of the liquidity and/or funding position;
- A significant decrease in the level of regulatory capital adequacy as a result of increase in the cost of risk or aggressive dividend policy;
- Deterioration of competitive positions in key business segments due to further consolidation of the banking sector.
Rating components
Standalone creditworthiness assessment (SCA): a+.
Adjustments: none.
Support: systemic importance, 2 notches up.
Issue ratings
Credit rating rationale. The issues listed below represent senior unsecured debt of JSC “ALFA-BANK”. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Bank’s in terms of priority. According to the ACRA methodology, the credit rating of the issues is equivalent to that of Alfa-Bank, i.e. AA(RU).
Key issue properties
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, BО-22 series (RU000A0ZYGB6), maturity date – December 4, 2032, issue volume – RUB 5 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, BО-18 series (RU000A0JX5W4), maturity date – January 5, 2032, issue volume – RUB 5 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, BО-40 series (RU000A0ZYU21), maturity date – March 4, 2033, issue volume – RUB 10 bln, – АА(RU).
JSC “ALFA-BANK” Eurobonds (LPN) (XS1567117566), actual issuer – Alfa Bond Issuance Plc, maturity date – February 16, 2022, issue volume – RUB 10 bln, – АА(RU).
Exchange-traded interest-bearing certified unregistered bond issued by JSC “ALFA-BANK”, BО-39 series (RU000A0ZYWB3), maturity date – March 17, 2033, issue volume – RUB 10 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, BО-20 series (RU000A0JXRV7), maturity date – May 11, 2032, issue volume – RUB 5 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, 002P-01 series (RU000A0ZZEW4), maturity date – August 2, 2021, issue volume – RUB 10 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, BО-21 series (RU000A0ZYBM4), maturity date – October 13, 2032, issue volume – RUB 5 bln, – АА(RU).
JSC “ALFA-BANK” Eurobonds (LPN) (XS1648266788), actual issuer – Alfa Bond Issuance Plc, maturity date – July 20, 2021, issue volume – RUB 10 bln, – АА(RU).
Certified exchange-traded interest-bearing unregistered bond issued by JSC “ALFA-BANK”, 002P-02 series (ISIN RU000A0ZZRB0), maturity date – November 1, 2021, issue volume – RUB 10 bln, – АА(RU).
Credit rating rationale. The issues listed below envisage a significant level of subordination relative to senior unsecured creditors, as well as the right of JSC “ALFA-BANK” to cancel at its discretion any interest payment on these issues at any interest payment date, with lenders obtaining no right to claim the unpaid interest. According to ACRA methodology, the final credit rating of this type of issues has to be five notches below the SCA of JSC “ALFA-BANK” (a+).
Subordinated perpetual Eurobond issued by JSC “ALFA-BANK” (XS1513741311), actual issuer – Alfa Bond Issuance Plc, maturity date – not set, issue volume – USD 700 mln, – BBB-(RU).
Subordinated perpetual Eurobond issued by JSC “ALFA-BANK” (XS1760786340), actual issuer – Alfa Bond Issuance Plc, maturity date – not set, issue volume – USD 500 mln, – BBB-(RU).
Regulatory disclosure
The credit ratings of JSC “ALFA-BANK” and bond issues of JSC “ALFA-BANK” (ISIN RU000A0ZYGB6, ISIN RU000A0JX5W4, ISIN RU000A0ZYU21, ISIN XS1567117566, ISIN RU000A0ZYWB3, ISIN RU000A0JXRV7, ISIN RU000A0ZZEW4, ISIN RU000A0ZYBM4, ISIN XS1648266788, ISIN RU000A0ZZRB0, ISIN XS1513741311, ISIN XS1760786340) 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 and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating assigned to JSC “ALFA-BANK” was first published by ACRA on November 15, 2016; the credit rating assigned to the bond issue (ISIN RU000A0ZYGB6) – November 24, 2017; the credit rating assigned to the bond issue (ISIN RU000A0JX5W4) – January 24, 2017; the credit rating assigned to the bond issue (ISIN RU000A0ZYU21) – February 21, 2018; the credit rating assigned to the bond issue (ISIN XS1567117566) – February 17, 2017; the credit rating assigned to the bond issue (ISIN RU000A0ZYWB3) – March 6, 2018; the credit rating assigned to the bond issue (ISIN RU000A0JXRV7) – May 31, 2017; the credit rating assigned to the bond issue (ISIN RU000A0ZZEW4) – July 31, 2018; the credit rating assigned to the bond issue (ISIN RU000A0ZYBM4) – October 2, 2017; the credit rating assigned to the bond issue (ISIN XS1648266788) – July 24, 2017; the credit rating assigned to the bond issue (ISIN RU000A0ZZRB0) – October 30, 2018; the credit rating assigned to the bond issue (ISIN XS1513741311) – December 9, 2016; the credit rating assigned to the bond issue (ISIN XS1760786340) – January 31, 2018. The credit rating and credit rating outlook of JSC “ALFA-BANK” and the credit ratings of bond issues of JSC “ALFA-BANK” (ISIN RU000A0ZYGB6, ISIN RU000A0JX5W4, ISIN RU000A0ZYU21, ISIN XS1567117566, ISIN RU000A0ZYWB3, ISIN RU000A0JXRV7, ISIN RU000A0ZZEW4, ISIN RU000A0ZYBM4, ISIN XS1648266788, ISIN RU000A0ZZRB0, ISIN XS1513741311, ISIN XS1760786340) are expected to be revised within one year following the rating action date (November 9, 2018).
The assigned credit ratings are based on the data provided by JSC “ALFA-BANK”, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of ABH Financial Limited, IFRS consolidated statements of JSC “ALFA-BANK” and statements of JSC “ALFA-BANK” composed in compliance with the Bank of Russia Ordinance No. 4212-U as of November 12, 2009. The credit rating is solicited and JSC “ALFA-BANK” participated in its assignment.
The credit ratings are solicited and JSC “ALFA-BANK” participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by JSC “ALFA-BANK” in its financial statements have been discovered.
ACRA provided additional services to JSC “ALFA-BANK”. No conflicts of interest were discovered in the course of credit ratings assignment.
