February 21, 2017 / 3:36 PM / 10 months ago

Fitch Affirms National Clearing Centre's FC IDR at 'BBB-'

(The following statement was released by the rating agency) MOSCOW, February 21 (Fitch) Fitch Ratings has affirmed National Clearing Centre's (NCC) Long-Term Foreign Currency (FC) Issuer Default Rating at 'BBB-', Long-Term Local Currency (LC) IDR at 'BBB' and Viability Rating at 'bbb'. The LC IDR and the VR are one notch above the FC IDR and the Russian sovereign rating of 'BBB-'. The Outlooks on the Long-Term IDRs are Stable. A full list of rating actions is at the end of this comment. NCC is a key operating subsidiary of the Moscow Exchange Group (MOEX), which is the largest exchange in Russia. NCC is a central clearing counterparty (CCP) on foreign exchange (FX), securities, repo, derivatives and commodities markets. In its role as an intermediary between market participants, NCC acts as a counterparty for each trade and is ultimately responsible for the performance of trading obligations in case of the failure of one or more clearing participants. KEY RATING DRIVERS The affirmation of NCC's LC IDR and VR reflects an exceptionally strong credit profile in the context of the Russia market, based on the entity's intrinsic strength. NCC has a high resilience to potential losses due to strong risk management and controls, the largely short-term nature of its risk exposures, and robust solvency, which is further protected by extra buffers and a loss cap (with any excess loss to be shared between market participants). The VR also reflects NCC's strong liquidity, robust performance as well as a counter-cyclical and an inexpensive funding base. Fitch rates NCC's VR and LC IDR above the Russian sovereign rating of 'BBB-' as the agency believes NCC would probably retain its capacity to service its obligations in roubles even in case of a sovereign default due to its sound risk management. Further Fitch expects NCC to toughen collateral requirements in case of increased market stress. At the same time, NCC's credit profile is closely correlated with the domestic operating environment and Fitch therefore caps the rating at one notch above the sovereign. Credit risk is well-managed and is represented primarily by counterparty exposures, mostly to local banks and brokers. NCC mitigates credit risks with prudent collateral management in respect to both initial and variation margins. This is typically done using statistical value-at-risk (VAR)-like methods, but to protect itself from tail risk arising from market turbulence (as in December 2014), NCC can manually increase collateral requirements. Credit risk management is further reinforced by sound close-out netting and cross-default procedures. NCC does not extend any uncollateralised exposures to market participants. At end-2016, NCC's collateral levels substantially exceeded the potential replacement costs that could arise from counterparty defaults. With the exception of one small loss in 2013, NCC has not suffered any losses from counterparty defaults either during the 2008 crisis or in forced close-outs made since then. NCC's investment policy is quite conservative, permitting holdings of cash, placements in highly-rated banks and investments in short-term (up to 1.5-year duration) bonds rated 'BB+' and above. At end-2016, approximately 84% of the securities portfolio and 70% of bank placements represented investment-grade risk. Placements in Russian commercial banks (primarily state/foreign owned) were equal to 70% of total equity and holdings of Russian bank, corporate and sovereign securities comprised a further 3.6x of equity. These represent potential risk in case of extreme stress scenarios in Russia, although Fitch believes management would take action to significantly reduce these exposures in case of sharp deterioration of the operating environment. NCC's regulatory capital ratio was a sound 19.4% at end-2016. Fitch estimates that existing capital buffers would allow NCC to withstand the default of nearly all counterparties unless these defaults were accompanied by unprecedentedly high daily market movements impairing the currently sound collateralisation. The default waterfall (procedure for allocating losses in case of counterparty failures) further protects NCC's solvency by capping losses for NCC. Under this framework, NCC's loss on counterparty defaults is limited to RUB9.5bn (17% of equity at end-2016) with the excess loss to be covered by collective default funds (RUB3.7bn) and the Moscow Exchange contribution to the default funds (up to RUB5bn), available upon request. According to NCC's clearing rules, any remaining loss is to be shared among market participants. Sound earnings generation (RUB21bn net income in 2016 under local GAAP, ROAE of 35%) provides an additional cushion. NCC has no debt, and its liabilities consist primarily of interest-free counterparty trading accounts. Almost all assets are very liquid and fully cover customer accounts. Fitch believes CBR is preparing to introduce from 1 January 2018 a new regulatory regime for CCPs with specific capital and liquidity requirements to better reflect the nature of their operations. Fitch estimates that based on end-2016 figures NCC would comfortably comply with these requirements. NCC's Long-Term FC IDR of 'BBB-' is constrained by Russia's Country Ceiling. The FC IDR is driven by the VR, but also underpinned at this level by potential sovereign support, as reflected in the Support Rating Floor (SRF) of 'BBB-', in line with the sovereign rating. Fitch views the propensity of the sovereign to provide support to NCC as high given its important role in ensuring the functioning of local financial markets and its unique infrastructure. A failure of NCC to perform its functions could lead to serious confidence-related issues and have a material negative impact on the whole Russian financial system. RATING SENSITIVITIES NCC's IDRs and VR would be downgraded if Russia's sovereign ratings are downgraded and the Country Ceiling is revised lower. Losses due to insufficient collateralisation, repetitive or prolonged IT-system outages, frequent/substantial utilisation of CBR liquidity facilities or a significant decrease in loss absorption capacity could put downward pressure on NCC's VR, potentially resulting in its LC IDR being downgraded to the level of the FC IDR. The rating actions are as follows: Long-Term Foreign Currency IDR: affirmed at 'BBB-'; Outlook Stable Long-Term Local Currency IDR: affirmed at 'BBB'; Outlook Stable Short-Term Foreign Currency IDR: affirmed at 'F3' Support Rating: affirmed at '2' Support Rating Floor affirmed at 'BBB-' Viability Rating: affirmed at 'bbb' Contacts: Primary Analyst Alexander Danilov Senior Director +7 495 956 2408 Fitch Ratings Moscow 26 Valovaya Street Moscow 115054 Secondary Analyst Anton Lopatin Director +7 495 956 7096 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com; Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019301 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below