ACRA affirms BBB+(RU) to QIWI Bank (JSC), retains status “Rating under revision: negative”

The credit rating of QIWI Bank (JSC) (hereinafter, QIWI Bank, or the Bank) is based on the satisfactory assessment of the business profile, strong capital adequacy, adequate risk profile and adequate funding and liquidity position.

As of April 1, 2021, the Bank ranked 71st in terms of equity among Russian banks and was 99% owned by QIWI (hereinafter QIWI, or the Group). The Bank acts as the main profit accumulation center for QIWI. Over the past three years, QIWI Bank’s average shares in the Group’s capital, net profit and assets have amounted to around 60%, 75% and 85%1, respectively. The ultimate owners of the Bank are «Bank Otkritie Financial Corporation» (Public Joint-Stock Company) (AA(RU), outlook Stable; 34%) and S. A. Solonin (17%). The remaining stake of around 49% is in free float. The key strategic shareholder, with the largest voting rights, is Mr. Solonin. Recently, B. Kim ceased to be a shareholder of the Bank (he had a 2% stake in its capital), who, together with Mr. Solonin, was one of the founders of the Group.

The “Rating under revision: negative” status has been retained because ACRA continues to view the situation related to the potential consequences of the Bank of Russia imposing restrictions on QIWI Bank’s cross-border activities at the start of December 2020 for six months as uncertain. In particular, the Agency cannot exclude risks associated with further negative regulatory intervention in the Bank’s activities.

The Agency also notes remaining risks of negative impact on the competitive positions and stability of the Bank’s and QIWI’s operations, taking into account the growing attention of the Bank of Russia to payment operations in the banking sector, developing regulation of the sports betting segment, and the increased, as per the Agency’s opinion, reputational pressure due to the negative information background formed after the Bank of Russia introduced restrictions on the Bank.

ACRA will monitor the situation with regard to the aforementioned risks over the next 90 days and may affirm or downgrade the rating of QIWI Bank and remove the “Rating under revision: negative” status as additional information becomes available.

1 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

Risks of the business profile, which is currently assessed as satisfactory (bb+), continue to put downside pressure on the final rating. In the Agency’s opinion, the stability and prospects of some areas of business of QIWI Bank continue to be uncertain due to the evolving situation related to restrictions imposed by the Bank of Russia and the regulator’s policy of counteracting a certain type of transactions. ACRA notes the presence of continued regulatory risks, as well as risks of an unfavorable change in the operating environment for credit organizations with business profiles similar to that of QIWI Bank.

In addition, the violations identified during regulatory audits, in ACRA’s opinion, show that the risk control systems in place at the Bank were deficient. ACRA also assumes that the restrictions imposed on QIWI Bank by the Bank of Russia in December 2020 resulted in reputational pressure on the Group’s business, which may be a factor of instability in the short and medium term. ACRA also notes the frequent changes in the Group’s management bodies — over the past 24 months QIWI has changed its CFO twice.

The financial results for Q1 2021, when the Group and the Bank for the first time in the past four years did not record pronounced positive dynamics of operating income from the payment segment, evidence the validity of the Agency’s concerns. Consequently, ACRA does not expect the Bank’s net fee and commission income to grow steadily in 2021.

In addition to the restrictions imposed by the Bank of Russia on cross-border transfers, the possible loss of QIWI’s competitive positions in working with bookmakers may also have a negative impact on the Bank’s financial results. Recent changes in the law should result in only one licensed Unified Interactive Bets Accounting Center operating by September 2021. Currently, QIWI is one of two existing centers with similar status.

An important factor, which is taken into account in ACRA’s assessment of the Bank’s business profile, continues to be the tough competitive environment as various market players (including banks, payment systems and other payment operators) offer broadly similar products. Constantly evolving regulation of the use of e-wallets may serve as an additional source of negative impact on QIWI’s business, according to the Agency’s view. Nevertheless, going forward, the abovementioned risks with regard to the Bank’s business profile may continue to be partly balanced by business profitability, which considerably exceeds that of other Russian banks.

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 45%) coupled with a relatively comfortable N1.2 capital adequacy ratio of 14.8% as of the start of April 2021. In the absence of additional regulatory intervention in the Bank’s activities, ACRA expects profit indicators to remain at around the current levels in the next 12–18 months, even taking into account that the Agency does not expect growth in the Bank’s fee and commission income. In particular, management’s strategic decision to jettison two projects (Rocketbank and the Sovest installment cards) will provide considerable support to financial results in the current conditions as it will have a positive impact on administrative expenses. ACRA expects the Bank to continue to distribute around 50% of profit in the form of dividends.

Adequate risk profile. ACRA assumes that the volume of credit risk held by QIWI Bank on its balance sheet will remain at a relatively low level over the next 12–18 months. Off-balance sheet credit commitments in the form of the guarantee business (a major part of which is related to state contracts) are still part of QIWI’s strategic priorities. ACRA has not identified any significant volume of problematic guarantees issued. However, it is noteworthy that the Bank is rapidly growing this area of business (in 2021 growth is expected to amount to 50% following 170% growth in 2020; substantial growth began in 2019 from a low base), and the pronounced focus on the construction sector may serve as a potential risk factor for the overall quality of the guarantee portfolio.

In addition, the Agency’s risk profile assessment takes into account the high operational risks inherent to the business model of the Group.

Adequate funding and liquidity position. 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 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

  • Development of the situation related to the risk of further regulatory intervention in the Bank’s activities;
  • Continuing uncertainty of the final interpretation of regulatory restrictions and their impact on the Bank’s activities;
  • Maintaining the current business model and high profitability over the next 12–18 months assuming no additional regulatory limitations.

Potential outlook or rating change factors

The “Rating under revision: negative” status assumes that the rating may be downgraded within the next 90 days.

Removal of the “Rating under revision: negative” status and affirmation of the credit rating may be prompted by:

  • Resolution of uncertainty regarding the risk of further negative regulatory intervention, as well as the Agency’s understanding of factors that will help the Bank to adapt its business in the context of existing restrictions, and/or significant alleviation of the restrictions.

Removal of the “Rating under revision: negative” status and downgrade of the rating may be prompted by:

  • Implementation of regulatory risks in the form of the Bank of Russia carrying out further negative actions in relation to QIWI Bank which impact its business;
  • Signs of weakening of the Bank’s business profile, expressed by, for example, further absence of progressive positive dynamics in financial results from recurring operations and/or loss of competitive positions in key business segments, including sports betting.

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 of QIWI Bank (JSC) was published by ACRA for the first time on July 2, 2018. The credit rating and its outlook are expected to be revised within 90 days following the publication date of this press release.

The credit rating was assigned based on data provided by QIWI Bank (JSC), information from publicly available sources, and 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.

In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

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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