ACRA affirms AAA(RU) to AO Raiffeisenbank, outlook Stable

The credit rating of AO Raiffeisenbank (hereinafter, Raiffeisenbank, or the Bank) is determined by its ultimate standalone creditworthiness assessment (SCA), high systemic importance for the Russian market, and the high likelihood of extraordinary support from the Bank’s controlling shareholder marked by a moderately strong creditworthiness (compared to the rated entity).

Raiffeisenbank is a systemically important universal bank, occupying one of the leading positions in terms of assets and capital in the Russian banking sector (it ranks 11th among the largest banking groups by capital). Austria-based Raiffeisen Bank International AG (hereinafter, RBI, the Supporting Organization, or the SO) owns 100% of Raiffeisenbank’s shares.

Key rating assessment factors

Strong business profile. Raiffeisenbank is characterized by a strong franchise in key segments of the banking market, a stable capability to generate high operating income, and minimal sensitivity to the economic environment. The universal nature of the Bank’s business ensures high operating income diversification (the Herfindahl-Hirschman index amounted to 0.19 in 2019). Raiffeisenbank’s management quality is assessed as very high due to successful and long-term experience of its top managers coupled with additional control over the Bank’s operating activities on the part of RBI.

Significant loss absorption buffer. N1.2 stood at 11.27% as of May 1, 2021, while the average for the last 12 months was 13.22%; Tier 1 capital adequacy was 22.8% as of December 31, 2020. The Bank continues to demonstrate its strong ability to generate capital thanks to a higher net interest margin compared to the peer group (average NIM for 2018–2020 equaled 5.5%) and low cost of risk. High profitability and the strong loss absorption buffer allow the Bank to withstand a significant (over 500 bps) growth of credit risk without breaching the regulatory requirements.

The risk profile assessment is determined primarily by the high quality of the loan portfolio. ACRA notes that the Bank has maintained a low volume and share of problem and potentially problem loans in its portfolio. Stage 3 loans and other impaired assets accounted for around 3.6% of the portfolio as of March 31, 2021 (NPL90+ = 2.3%). The concentration on the ten largest borrowers continues to be low (15.4% of the portfolio). The risk management system is characterized by transparency, high underwriting standards, and additional control from RBI. ACRA also notes the low share of loans issued to companies operating in high-risk industries, as well as loans due from related entities. However, the Agency notes that a significant part of the loan portfolio (67% as of December 31, 2020) consists of lending provided without collateral or under bank guarantees or sureties.

Strong liquidity position coupled with a well-balanced funding profile. Under ACRA’s base case scenario, Raiffeisenbank is able to withstand an outflow of customer funds with a significant margin (liquidity surplus = over RUB 300 bln). Under the stress scenario, the liquidity deficit does not exceed 1.2%. In addition, the Bank’s assets and liabilities are balanced in terms of maturity. The Bank’s funding structure is sufficiently diversified by sources (the largest source represented by funds of individuals forms 51.6% of liabilities) and creditors (the share of the ten largest groups of creditors is 4.28%, and the share of the largest creditor is 0.8%).

The Bank’s systemic importance for the Russian financial sector is determined by the significant volume of client funds on the Bank’s balance sheet and its presence in the majority of Russian regions. Raiffeisenbank is on the Bank of Russia’s list of systemically important credit organizations. ACRA’s opinion on the level of systemic importance is expressed in the addition of two notches to the SCA.

High likelihood of extraordinary support from the key shareholder. If necessary, the Supporting Organization is ready to provide Raiffeisenbank with both short-term and long-term financing, as well as to replenish its capital due to the strategic importance of the Russian market for RBI (as of the end of 2020, its share in RBI’s EBIT amounted to 47% and the share in RWA was around 10%). A potential default of the Bank may pose serious operating and financial risks for the SO. In addition, as the Bank and the SO operate under a single brand, so the Bank’s default would be directly associated with the SO’s problems. The SO exercises shareholder and operational control over the Bank and determines its development strategy.

In ACRA’s opinion, the creditworthiness of the SO exceeds the creditworthiness of the Bank, and therefore if necessary the SO will be able to provide support to the Bank in the form of capital and liquidity.

However, the Agency notes that the SO and the Bank operate in different jurisdictions, which means the possibility of providing support depends on the freedom of movement of capital between the countries of presence. In addition, the Bank’s large size in terms of the SO may act as a factor that influences the volume of support.

Key assumptions

  • Retaining RBI’s shareholder and operational control over the Bank;
  • Cost of credit risk within 1%;
  • Net interest margin within 5–6%;
  • Tier 1 capital adequacy (N1.2) above 9% 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 negative rating action may be prompted by:

  • Material deterioration of the Bank’s creditworthiness;
  • Loss of RBI’s shareholder and operational control over the Bank, decline in RBI’s propensity to support the Bank, or a considerable fall in RBI’s creditworthiness.

Rating components

SCA: aaa.

Adjustments: none.

Systemic importance: +2 notches to the SCA.

Support: ACRA assumes that the SO will be able to provide extraordinary support to the Bank in the form of capital and liquidity. As the SCA is aaa, the potential impact of support on the rating has not been determined.

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, Methodology for Analyzing Rated Entities Associated with the 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 AO Raiffeisenbank was published by ACRA for the first time on June 23, 2017. 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 data provided by AO Raiffeisenbank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS statements of AO Raiffeisenbank and statements of AO Raiffeisenbank drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and AO Raiffeisenbank 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 AO Raiffeisenbank. No conflicts of interest were discovered in the course of credit rating assignment.

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