NSD affirmed at ‘ruAAA’ with a ‘stable’ outlook

15 November 2022
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The credit rating assigned to NSD is supported by the Company’s strong market positions, capital adequacy, adequate operating performance, high asset quality, a comfortable liquidity position, and effective organisation of business processes. The Agency notes the critical importance of NSD's role as a central securities depository and its exceptional role in the Russian financial services market in ensuring the proper functioning of the market infrastructure. In this context, the Agency believes that NSD is highly likely to receive administrative and/or financial support, if necessary. Otherwise, NSD will have its rating under pressure.

The Agency notes that failure to make payments on Eurobonds in favour of Russian resident depositors along with blocked assets of NSD's clients (foreign securities, including Eurobonds, placed by NSD with international securities depositories in international jurisdictions, payments on securities, as well as balances in Euro and Swiss francs in NSD's correspondent accounts with international correspondent banks) has resulted from EC and Swiss sanctions. At the time of this press release, balances in blocked accounts fully covered NSD's relevant liabilities to depositors, and therefore the suspension of revenue payments and settlements in blocked currencies is not considered by the agency to be a factor affecting NSD’s creditworthiness. The Agency also believes it is appropriate to inform rating users about Expert RA’s rating approaches in a high-pressured Russian financial market environment (https://raexpert.ru/releases/2022/mar17f).

The Bank of Russia recognized NSD as a systemically important financial market infrastructure: a systemically important central securities depository, settlement depository, trade repository and registrar of financial transactions. The NSD payment system is qualified as systematically and nationally important.

The Company’s strong market positions are due to its status as systemically important financial market infrastructure and its extensive client base. The scale of business remains considerable despite a slight decrease in the market value of securities held in custody due to fewer portfolios of major clients. The Agency has a positive view of the Company's client base quality. As of 01/7/2022, clients with a credit rating equivalent to lower than Expert RA’s ‘ruBB’ or non-rated clients accounted for a small share of securities held in custody at NSD. The level of diversification of the company's revenues from depository business during the period under review has not changed much and the Agency rates it as adequate.

Capital and operating performance adequacy. Amid growing client balances, the company's capital adequacy was under pressure in March and June this year. In Q3 2002, however, the Company’s capital adequacy level has stabilised and the Agency assesses it as adequate. The ratio of the equity and insurance coverage to the value of securities held in custody remains at a low level. Company's operating performance remains strong, with a rise in profitability driven by interest income growth from deposits with the Bank of Russia.

High asset quality. The major part of the company's assets comprises funds held in correspondent accounts with institutions rated by Expert RA at ‘ruAAA’ level and on deposits with the Bank of Russia. Substantial funds in international jurisdictions along with foreign securities recorded with NSD, including Eurobonds, have been blocked following the sanctions imposed on NSD. NSD takes proactive efforts to appeal these decisions judicially and administratively to the appropriate international jurisdictions.

Comfortable liquidity position. The maturity profile of the Company's assets and liabilities is well-balanced, and the arrangements under contractual relationships with customers driven by unfriendly governments’ moves have ensured proper liquidity management across the Company. If needed, NSD can potentially be refinanced by the Bank of Russia through such standard instruments as Lombard loans or an overdraft backed by a pool of securities. However, historically, due to regulatory restrictions and the company's policies, no need to raise funding to manage liquidity has arisen. The projected income and expense plan made available to the Agency also shows that NSD have revenues well above its expenditures.

The level of business organisation is assessed as high. The Agency notes adequate IT infrastructure, reliable professional liability insurance coverage and high-quality specially designed software used by NSD. The shareholders are strongly involved in planning NSD’s growth at the Supervisory Board level. The development strategy until 2024 incorporates a set of measures to implement the regulator's initiatives to stabilise and develop the financial market in the context of sanctions, to develop complementary products and services, and to modernise the digital infrastructure. The Agency finds the Company’s strategic plans as adequate to its capabilities in the current market environment and contributing to further improvement of the Company's competitive positions as a highly important component of the Russian financial market infrastructure.

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