The credit rating of SDM-Bank PJSC (hereinafter, the Bank) is based on satisfactory business and risk profile assessments. In ACRA’s opinion, due to its high profitability and common capital adequacy ratios, the Bank is able to absorb substantial potential losses. The Bank also holds strong liquidity positions, while its resource base concentration is moderately high.
Key rating assessment factors
The business profile (bbb-) remains satisfactory because of the Bank’s stably transparent ownership structure and stable quality of corporate governance. The Bank maintains highly diversified operational income based on a significant share of fees in total revenues (23.4% as of December 31, 2018). The Bank’s business profile assessment is still limited by relatively low shares in the federal and regional markets. The Bank ranks 94th in equity and 80th in assets among Russian banks. The Bank's lines of business are well established and include lending and other financial services to SMEs.
The Bank’s strong capital position is supported by high indicators (N1.2 = 13.1% as of May 1, 2019). The Bank maintains substantial operational profits; the averaged capital generation ratio (ACGR) for 2014-2018 amounted to 238 bps. Due to its substantial loss absorption buffer, high profitability, and low current cost of credit risk, the Bank is able to withstand sizeable unexpected losses; its common capital adequacy ratio will not fall below 6% unless the cost of risk increases well above 500 bps.
The satisfactory risk profile assessment is based on the Bank’s adequate risk management system, high quality assets outside of the loan portfolio, the concentration of said portfolio, and a high level of market risk. According to ACRA, the Bank reduced the level of problem and potentially problem loans to 9.8% as of December 31, 2018 (16.5% as of December 31, 2017); NPL90+ stands at 3.5% as of December 31, 2018 (2.3% as of December 31, 2017). The high concentration of the loan portfolio remains a limiting factor on the portfolio’s assessment; the top ten largest borrowers account for 30% of the loan portfolio. As of December 31, 2018, the Bank’s loan portfolio amounted to less than 25% of assets. Most of the Bank's assets (more than 50%) come from the securities portfolio, which is dominated by sovereign bonds of the Russian Federation and corporate debt instruments of high credit quality. The significant amount of securities on the Bank’s balance sheet is associated with an increased level of market risk (significantly exceeds 100% of Tier-1 capital).
ACRA assesses the Bank’s liquidity position as strong. Due to a substantial amount of cash and unencumbered securities of high credit quality, the Bank has a significant short-term liquidity surplus under the base case scenario in respect of the short-term liquidity shortage indicator (STLSI). In the stress scenario, this indicator is exceeds 40%. ACRA notes no imbalances for longer periods, as the long-term liquidity shortage indicator (LTLSI) exceeds 100%.
Heightened dependence on the largest source of funds (the share of retail funds in the Bank's liabilities is over 60%) limits the funding assessment. ACRA assesses the concentration of funds raised from the largest lenders/depositors as low.
- Maintaining the current business model within the 12 to 18-month horizon;
- Growth rate of the loan portfolio below 20% in 2019;
- Cost of credit risk within 3%;
- N1.2 higher than 10% within the 12 to 18-month horizon;
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Reduced loan portfolio concentration on the ten largest borrowers;
- Reduction of problem loans in the loan portfolio;
- Substantial reduction in market risk;
- Increased diversification of resource base.
A negative rating action may be prompted by:
- Deviation from the current business model;
- Reduced loan portfolio quality;
- Reduction in the quality of assets outside of the loan portfolio;
- Deterioration in liquidity position.
Standalone creditworthiness assessment (SCA): bbb+.
Support: systemic importance is absent.
The Bank has no debt securities in free float.
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating assigned to SDM-Bank PJSC was first published on June 19, 2017. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The assigned credit rating is based on the data provided by SDM-Bank PJSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of SDM-Bank PJSC and statements of SDM-Bank PJSC composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and SDM-Bank PJSC participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by SDM-Bank PJSC in its financial statements have been discovered.
ACRA provided no additional services to SDM-Bank PJSC. No conflicts of interest were discovered in the course of credit rating assignment.