Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) affirms the international scale long-term issuer credit ratings of Gazprombank (Joint-stock Company) (hereinafter referred to as GPB) at A- for both local currency and foreign currency and assigns AAA China’s long-term issuer national scale rating. The outlooks of the ratings are stable. Although GPB’s profitability and asset quality are slightly under pressure, considering that GPB has extremely high-quality and steady corporate customers, stable and smooth financing channels, strong external support capacity and willingness, the overall debt repayment ability is relatively strong.
The rationale for Dagong’s affirmed rating is as follows:
1. Russia maintains high domestic political stability and monetary policy gradually returning to normalization will improve credit conditions.
Russia maintains political stability. The second phase of structural reforms launched by the Russian government since March 2016 favors an improvement in the economic structure and enhances economic recovery. However, the relationship between Russia, the EU, and the US continues to be influenced by political frictions, thereby resulting in limited room for the abatement of geopolitical risks in the future. Monetary policy returned to normal in 2016, and will be loosened prudentially. Banking supervision is gradually integrating with international standards and the credit environment has been improved.
2. Benefiting from its superior high quality and stable corporate clients, GPB maintains a high market position and its operating income keeps growing, its net interest margin has widened slightly, and its wealth creation capability will be improved.
With the slowdown in the growth of assets and increasing concentration within the Russian banking industry, GPB has maintained a strong and stable market position through its advantage of high-quality clients and stable customer relationships. With the Russian economy recovering gradually, credit growth is expected to increase and GPB's operating income will keep increasing. The slightly widening net interest margin is expected to promote net interest income and profitability is expected to recover in the short term.
3. GPB’s capital is sufficient and the liquidity risk is controllable with various accessible financing sources and a reasonable funding repayment structure. Other strong and reliable repayment sources are government and shareholder support.
GPB’s capital is sufficient and its capital adequacy continues to improve. As of June 2016, the Tier 1 ratio and CAR of GPB had reached 10.6% and 14.3%, respectively. These figures are far above the regulatory requirements. Considering the significant decline in GBP’s debt level in the near term, the liquidity pressure is expected to ease. As the third largest bank in Russian, GPB has strong financing ability with plenty of financing channels, and the funding structure remains stable and reasonable. Considering GPB’s important position in Russia domestically, it is more likely to receive support from the government and also its shareholders, such as Gazprom Group. Its overall debt repayment sources are stable and reliable, which guarantee GPB’s debt repayment capacity.
4. GPB’s asset quality is rather secure through an adequacy of provisions and relatively low non-performing loan ratios compared with its Russian peers.
GPB’s loans to legal entities are mainly provided to customers in metal manufacturing, the chemical and petrochemical, oil and gas industries. Most of the corporate clients in these industries are nationally significant, which guarantee the quality and security of loans. GPB’s asset quality has slightly decreased, primarily due to the deterioration of certain loans to corporates in cyclical industries. As of June 2016, the NPL ratio rose to 2.5%, but that is still better than other large Russian banks and far below the industry average. With the future recovery of the Russian economy, GPB’s asset quality is expected to improve. At the same time, GPB increased its provisions and the coverage ratio peaked at 329.3% at the end of June 2016. The high coverage ratio further helps to prevent credit risk.
In the short term, with the recovery of the Russian economy, GPB’s profitability and asset quality are expected to improve. The liquidity risk is controllable. Considering the high-quality and stable relationships with corporate customers, sufficient financing sources and strong external support, the overall debt repayment ability is relatively strong. In terms of its comprehensive consideration, Dagong holds a ‘stable’ outlook for GPB’s credit rating for the next 1 to 2 years.
Dagong Global Credit Rating CO., LTD