The credit rating assigned to JSC CB Solidarnost (hereinafter, the Bank) is based on its moderately low business profile assessment, satisfactory capital adequacy, critical risk profile assessment, and adequate assessment of the funding and liquidity position.

The Bank is a medium-sized credit institution registered in Samara. The Bank is focused on corporate lending and retail deposits. As of March 1, 2020, the Bank ranked 76th in terms of capital among Russian banks.

Key rating assessment factors

The moderately low business profile assessment reflects the relatively low share held by the Bank in the Russian banking services market (the Bank ranks 108th in terms of assets). However, at the regional level, the Bank’s market positions are adequate.

The Bank’s business diversification is assessed as relatively high. According to ACRA’s calculations, the Herfindahl-Hirschman Index stood at 0.21 as of January 1, 2020. Interest income from loans accounts for more than 60% of revenue.

The organizational structure of the Bank matches the scope and specifics of its business.

The Bank is currently undergoing a financial rehabilitation procedure designed to turn it into a credit institution that serves cash flows and goods turnover between Russia, China, Vietnam, and other South East Asian countries.

The financial rehabilitation is administered by Zarubezhenergoproekt JSC (the Bank’s sole owner), whose financial position is characterized by significant leverage and an insufficient rate of income generation.

ACRA assess the Bank’s capital adequacy as satisfactory, taking into account the fact that the Bank is currently undergoing financial rehabilitation, and therefore is only required to comply with certain key ratios. As of January 1, 2020, the Bank’s capital adequacy ratios were high (N1.1 and N1.2 ratios at 21.3% and N1.0 ratio at 29.4%), which was in line with the financial rehabilitation plan and allowed the Bank to withstand a credit risk increase of more than 500 bps.

The Bank’s capital is under pressure from its low operating efficiency, as the average NIM amounted to 2.5% and the CTI equaled 130.8% for 2017–2019.

ACRA also notes that the Bank’s capital generation capacity is extremely low due to its low operating efficiency (according to ACRA’s estimations based on the RAS financial data of the Bank, the average capital generation ratio (ACGR) was negative for 2015–2019).

The Bank’s risk profile assessment is critical due to a high share of problem loans (Stage 3 loans under IFRS accounted for 34% of total loan debt) and a relatively high concentration of the loan portfolio on the 10 largest groups of borrowers (over 54% of the loan portfolio).  However, ACRA notes that problem loans were accumulated mainly as a result of the activities of the previous owners of the Bank and are accounted for in the financial rehabilitation plan.

The risk profile is further affected by a substantial amount of receivables (about 30% of the Bank’s fixed capital) due from the Bank’s former owner Probusinessbank OJSC, a relatively high volume of market risk (88% of fixed capital), and also substantial investments in non-core assets (RUB 2.4 bln were invested in a closed-end unit investment fund as of January 1, 2020).

Adequate liquidity position. As of January 1, 2020, the Bank was able to withstand a substantial outflow of client funds in both the base case scenario and the stress scenario (surplus of 11% of the total liabilities) applied by ACRA. We do not note any imbalances over longer terms: the long-term liquidity shortage indicator (LTLSI) exceeded 100% as of January 1, 2020.

The Bank’s funding is based on retail deposits (90% of liabilities excluding subordinated loans, as of January 1, 2020); therefore, the concentration on the largest clients/client groups not significant. The share of the largest creditor in the total liabilities is 14%, while the share of top 10 clients/client groups is 17%.

Key assumptions

  • Maintaining the current business indicators as part of the financial rehabilitation plan;
  • Keeping the N1.2 ratio above 12% in 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:

  • Significant decrease in the level of problem loans;
  • Lower concentration of the Bank’s loan portfolio on the 10 largest groups of borrowers;
  • Lower volume of non-core assets;
  • Return to profitability and improvement of the capital position.

A negative rating action may be prompted by:

  • Deteriorating capital position due to further losses;
  • Deteriorating funding and liquidity position.

Rating components

Standalone creditworthiness assessment (SCA): b.

Adjustments: none.

Support: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

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 of JSC CB Solidarnost was published by ACRA for the first time on May 22, 2019. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The credit rating was assigned based on the data provided by JSC CB Solidarnost, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC CB Solidarnost and the financial statements of JSC CB Solidarnost drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC CB Solidarnost participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by JSC CB Solidarnost in its financial statements have been discovered.

ACRA provided no additional services to JSC CB Solidarnost. No conflicts of interest were discovered in the course of credit rating assignment.

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