ACRA affirms BBB+(RU) to QIWI Bank (JSC), outlook Stable

The affirmation of the credit rating of QIWI Bank (JSC) (hereinafter, QIWI Bank, or the Bank) at BBB+(RU), outlook Stable, is based on ACRA’s opinion that curtailment of certain business projects against the backdrop of a complex operating environment does not change the Bank’s fundamental creditworthiness relative to other rated banks in Russia. QIWI Bank should maintain its solid business positions in the payment services segment by focusing on specific package solutions and offers for various target audiences of customers. In addition, ACRA expects the Bank to maintain its relatively conservative credit risk and liquidity risk management policies.

As of May 1, 2020, QIWI Bank ranked 82nd in terms of equity among Russian banks and was 99% owned by QIWI plc (hereinafter, QIWI plc, the Holding, or the Group). The ultimate owners of the Bank are «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) (AA-(RU), outlook Stable; 34%), S. A. Solonin (17%), and B. Kim (2%). The remaining stake of around 47% is in free float. The key strategic shareholder, with the largest voting rights, is S. A. Solonin.

QIWI Bank operates as part of the Holding, in which it acts as the main profit accumulation center for the entire business. Over the past three years, QIWI Bank’s average shares in the Group’s capital, net profit and assets have amounted to around 50%*, 70%* and 80%*, respectively. ACRA expects these shares to decline slightly over the next 12 months due to the curtailment of Rocketbank and the Sovest installment cards, which are consolidated at the Bank’s level, and also in connection with the launch of new projects in the Group outside QIWI Bank’s balance sheet.

* For the purpose of calculating these shares, the capital and assets of the Group were adjusted for the size of goodwill and intangible assets.

Key rating assessment factors

Satisfactory business profile assessment. QIWI Bank services the Group’s operations and is a key element of the QIWI payment service system, one of the leading providers of multifunctional payment services in the Russian and CIS markets. In particular, the Bank provides cash management and settlement services for the system, services QIWI wallets, maintains bank accounts and cards, performs cash transfers, and accepts user payments. It is noteworthy that lending operations have historically accounted for an insignificant part of the Bank’s operations, and in the future, their volume will become even smaller due to the recent sale of the Sovest installment card loans to PJSC Sovcombank.

QIWI Bank’s development strategy is an integral part of the Holding’s strategy. QIWI plc uses the core product — the QIWI wallet, which allows users to benefit from non-cash transfers  — as the basis to develop offers and services that are relevant to difference audiences, including package products for the self-employed and SMEs, servicing of platforms that are related to e-commerce, online games, and sports betting. In addition, the Group occupies a significant share in the money transfer segment.

However, ACRA does not expect considerable growth of the Bank’s net commission income this year amid the economic downturn. The current and expected decline in demand for products and services in the context of the still relevant risks of a reintroduction of quarantine measures is the primary constraint.

An important factor, which is taken into account in the assessment of the Bank’s business profile, is the tough competitive environment as various market players (including banks, payment systems and other payment operators) offer broadly similar products. So far, QIWI plc has demonstrated its ability to adapt to a rapidly changing environment and to the regulation of its activities. However, ACRA notes that not all of the Group’s business decisions and initiatives have been successful: in particular, this year it is jettisoning two projects (Rocketbank and the Sovest installment cards).

The strong capital adequacy stems from the high profitability of the Bank’s business (average return on equity for the past three years stood at around 40%) coupled with a relatively comfortable N1.2 capital adequacy ratio of 11% as of the start of May 2020. ACRA does not expect N1.2 to deteriorate significantly due to the planned reduction in the Bank’s balance sheet in 2020 and the disposal of a considerable amount of credit exposures associated with the Sovest installment card project. ACRA notes that this year, surplus capital may be withdrawn at the Bank’s level via dividend payouts.

Adequate risk profile. QIWI Bank will continue to adhere to its policy of keeping credit risks on its balance sheet at a low level. The considerable reduction of the loan portfolio is partly offset by the Bank’s plans to increase the size of its guarantees issued. ACRA expects the guarantee portfolio to be comparable to the size of the Bank’s Tier-1 regulatory capital by the end of the year. Increased risks may stem from the guarantee portfolio’s noticeable focus on the construction sector, which is high risk in ACRA’s opinion.

In addition, ACRA has taken into account the high operational risks inherent to the business model of the Group.

The Bank’s funding and liquidity profile is assessed as adequate. The short-term liquidity position of QIWI Bank is assessed as strong, as it demonstrates a surplus even under ACRA’s stress scenario. The long-term liquidity shortage indicator (LTLSI) is also assessed as strong due to the prevalence of highly liquid assets (accounts and deposits with the Central Bank of Russia, current interbank accounts) in the Bank’s assets. These assets balance the maturity structure of the balance sheet, as the majority of liabilities are classified as on demand.

Key assumptions

  • Maintaining the current business model over the next 12–18 months;
  • Maintaining the current level of capitalization;
  • Absence of major credit risks on the balance sheet.

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:

  • New and sustainable business lines appearing that contribute to higher operational diversification while maintaining the adequate risk profile.

A negative rating action may be prompted by:

  • Considerable deterioration of the operating environment for both the Bank and the Group, which may impair the Bank’s business profile;
  • Transition to a more aggressive model for accepting credit risks which puts press on capitalization;
  • Materialization of significant operational risks.

Rating components

SCA: bbb+

Adjustments: none.

Support: none.

Issue ratings

No outstanding issues have been rated.

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 and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating assigned to QIWI Bank (JSC) was first published on July 2, 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 the data provided by QIWI Bank (JSC), information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of QIWI Bank (JSC) and the financial statements of QIWI Bank (JSC) drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and QIWI Bank (JSC) participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by QIWI Bank (JSC) in its financial statements have been discovered.

ACRA provided additional services to QIWI Bank (JSC). No conflicts of interest were discovered in the course of credit rating assignment.

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