Expert RA Assigns the “ruAAA” Credit Rating to NSD

30 November 2021
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Russia’s credit rating agency Expert RA has assigned the “ruAAA” credit rating to National Settlement Depository (NSD), with a ‘Stable’ outlook.

Anna Volodina, Director of NSD's Risk Management Department: “The highest rating received by NSD proves that NSD is an absolutely reliable systemically important institution. The credit rating helps NSD's clients, counterparties, regulator, and other stakeholders evaluate the level of NSD’s financial strength. An independent assessment of reliability is yet another step towards infrastructure's maximum transparency to financial market participants.”

The credit rating assigned to NSD is supported by the Company’s strong market positions, capital adequacy, a high return on equity, high asset quality, a comfortable liquidity position, and a high assessment of business organization. The Agency notes the critical importance of NSD's role as CSD and its exceptional role in the Russian financial services market in ensuring the proper functioning of the market infrastructure.  The Agency believes that, due to NSD's critical importance and deep integration into the business of its majority shareholder and the financial market, NSD is highly likely to receive administrative and/or financial support from or through the shareholder, if necessary.

The Company’s strong market positions are due to its status as systemically important financial market infrastructure and the scale of its business, with the market value of securities in custody at NSD amounting to RUB 67.2 trillion (as of 30 June 2021). The Agency has a positive view of the Company's wide client base, with the CSD providing custody services to almost one thousand clients. The quality of the client base is rated high, with clients with a credit rating equivalent to lower than Expert RA’s ‘ruBB’ or non-rated clients accounting for less than 2% of the securities held in custody at NSD among the Company’s TOP-30 clients. In terms of the Company’s revenues, the largest client accounts for 12% of the revenues for the period of 30 June 2020 to 30 June 2021, while the TOP-5 clients account for more than 35% of the revenues.

Capital adequacy and a high return on equity. The Company has an adequate capital, with the capital adequacy ratio N1.0 being equal to 27.2% as of 30 June 2021. However, the ratio of the equity and insurance coverage to the value of securities held in custody is at a low level (0.02% as of 30 June 2021). The credit rating is supported by the high level of business profitability: over the period of 2019 to 2020, the average ROE under the IFRS amounted to 39%.

High asset quality. The high quality of investments is characteristic of NSD: as of 30 June 2021, 93% of its assets are balances in its correspondent accounts with Russian and foreign banks with a credit rating equivalent to or higher than Expert RA's ‘ruAA-’, while Russian Federal Loan Bonds (OFZ) account for around 4.5% of the Company's assets. That said, it is noted that more than 80% of NSD's assets are represented by settlements with CCP NCC that is also a member of the Moscow Exchange Group.

The comfortable liquidity position is supported by the acceptable liquidity cushion in the form of banks’ correspondent account balances and an OFZ portfolio. The maturity profile of the Company's assets and liabilities is well-balanced. Besides, if needed, NSD can potentially be refinanced by the Bank of Russia through such instruments as Lombard loans or an overdraft backed by a pool of securities. The Agency notes that the Company has estimated its income and expenses for the next 12 months and that estimated income significantly exceed estimated expenses.

The level of business organization is assessed as high. The Agency notes adequate IT infrastructure, high reliability of insurance coverage of the Company’s professional liability, and a high quality of dedicated software used by NSD. The Company's majority shareholder is strongly involved in planning NSD’s growth at the level of the Board of Directors. The Company has a development strategy for 2019-2024 that reflects the key trends in the economy and their impact on the Company’s business. The Company plans to continue implementing key projects in the field of settlement and custody infrastructure, as well as key projects focused on its information, trade repository, payment, IT, and tri-party services. The Agency estimates that the Company’s strategic plans are adequate to its capabilities in the current market environment and will contribute to improving its competitive positions.

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