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Rating Action:

Moody's affirms Tinkoff Bank's deposit and debt ratings at Ba3 and changes outlook to positive

08 Jul 2021

London, 08 July 2021 -- Moody's Investors Service ("Moody's") today affirmed the long-term foreign and local currency bank deposit ratings and local currency senior unsecured debt rating of Tinkoff Bank (Tinkoff) at Ba3 and changed the outlook on these ratings to positive from stable. Concurrently, Moody's affirmed the bank's Baseline Credit Assessment (BCA) and Adjusted BCA of ba3, its long-term local and foreign currency Counterparty Risk Ratings (CRRs) of Ba2 and its long-term Counterparty Risk Assessment (CR Assessment) of Ba2(cr). The bank's short-term local and foreign currency deposit ratings and short-term local and foreign currency CRRs of Not Prime, as well as its short-term CR Assessment of Not Prime(cr) were affirmed.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The outlook revision on Tinkoff's ratings to positive from stable is driven by the bank's strengthening business diversification with increasing share of non-credit business revenue stream, which makes its earnings less cyclical and underpins loss absorption capacity.

The affirmation of Tinkoff's ratings and rating assessments reflects the bank's demonstrated resilience to the recent economic downturn in Russia, underpinned by (1) its robust loss absorption capacity owing to solid earnings generation; (2) flexible business model, profitable through the credit cycle; and (3) sound liquidity cushion, supported by short asset duration and low reliance on wholesale funding. At the same time, the ratings remain constrained by the bank's exposure to unsecured consumer lending, active business growth and regulatory and competitive pressure in Russia.

The share of earnings from consumer lending declined to 61% in total revenue and 63% in pre-tax income as of end 2020 driven by the development of transactional and servicing business lines, such as retail debit card, investments brokerage, SME settlement services, acquiring and insurance amid active client base expansion and widened product range. Being positioned as a digital financial & lifestyle ecosystem the bank benefits from constant customer base growth, which underpins its revenue stream and funding base. Total number of active customers increased to 10.3 million in Q1 2021 from 7.2 million a year ago, ranking Tinkoff the third largest by number of active customers in the financial sector in Russia.

Tinkoff's strong earnings generation, further supported by increasing revenue diversification, shields it from the reversal of the credit cycle. The bank has flexible digital business model with around 30% of its operating expenses referred to customer acquisition costs, which can be reduced in a downturn. Tinkoff reported robust profitability results with return on assets (ROA) of 6.5% in Q1 2021, being the strongest among peers. Moody's expects the bank's profitability to decline but become less volatile with the forecasted solid ROA of 5% in the next 18-24 months given lowering risk profile and narrowing net interest margin amid growing share of secured loans and the development of transactional business.

Tinkoff's asset risk stems mainly from unsecured consumer lending. At the same time, the share of secured loans (home equity, car loans) is gradually increasing with reported 20% of net loans at end 2020 up from 13% in 2019, which lowers the bank's asset risk profile. Problem loans (defined as Stage 3 loans under IFRS 9) decreased to 11.9% of gross loans as of Q1 2021 from the peak of 13% in Q3 2020, driven by economic revival, continued loan book growth and write-offs. The bank's coverage of problem loans by loan-loss reserves has been historically solid and stood at 121% as of Q1 2021. Tinkoff's annualized cost of risk dropped to 3.9% in Q1 2021 from the peak of 15.9% in Q1 2020 following economic recovery. Moody's project Tinkoff's problem loans to be at around 12% of gross loans and cost of risk at around 7-8% in the next 18 months reflecting worsening household indebtedness in Russia.

Moody's expects Tinkoff's capital adequacy to remain robust with forecasted tangible common equity to risk-weighted assets ratio at 13.7% in the next 24 months (at the same level as at end 2020) amid targeted active business growth. The capital position is underpinned by solid earnings generation, absent dividend payouts in 2021 and good access to capital markets.

The bank's deposit base grew by 53% in 2020-Q1 2021, supported by new customers inflow with increased retail current accounts, including brokerage funds. The share of wholesale funds (excluding subordinated debt) was 4.1% of tangible banking assets as of Q1 2021 and Moody's does not expect it to increase substantially in the future. Tinkoff had solid liquidity cushion at 38.1% of tangible banking assets as of Q1 2021, while short duration of the credit card portfolio also supports its liquidity profile.

OUTLOOK

The positive outlook reflects Moody's expectations that the bank will further continue diversification of its business and revenue stream, while its financial profile, including loss-absorption capacity and liquidity buffer will remain robust in the next 12-18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Tinkoff's BCA and long-term ratings could be upgraded if it further improves business diversification or demonstrates further strengthening of its credit profile with reduction of asset risk or higher capital adequacy.

A downgrade of Tinkoff's ratings is unlikely given the positive outlook. However, the outlook could be changed to stable if the share of revenue from monoline business will rise materially relative to other types of revenue or the bank's risk appetite increases by targeting less creditworthy customers or/and new risky products, resulting in a weakening of its asset quality with adverse impact on profitability and capitalization.

LIST OF AFFECTED RATINGS

..Issuer: Tinkoff Bank

Affirmations:

....Adjusted Baseline Credit Assessment, Affirmed ba3

....Baseline Credit Assessment, Affirmed ba3

....Short-term Counterparty Risk Assessment, Affirmed NP(cr)

....Long-term Counterparty Risk Assessment, Affirmed Ba2(cr)

....Short-term Counterparty Risk Ratings, Affirmed NP

....Long-term Counterparty Risk Ratings, Affirmed Ba2

....Short-term Bank Deposit Ratings, Affirmed NP

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3, Outlook Changed To Positive From Stable

....Long-term Bank Deposit Ratings, Affirmed Ba3, Outlook Changed To Positive From Stable

Outlook Action:

....Outlook, Changed To Positive From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Malyukova
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yaroslav Sovgyra, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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