The credit rating of RosDorBank (hereinafter, the Bank) at BB-(RU) has been affirmed based on ACRA's opinion that, thanks to capital injections expected by late 2021, the Bank will be able to withstand elevated credit risks caused by a significant amount of high-risk loans and the strategy of fast growth amid the still challenging operating environment.
RosDorBank is a small bank based in Moscow that specializes in servicing corporate clients in the SME segment. As of the beginning of 2021, the Bank ranked 152nd in terms of equity among Russian credit institutions. The Bank’s main shareholders are the Artiukhovs family (39%) and V. Dorgan (14%), with the remaining shares distributed among partners (24%), top managers of the Bank (10%), and European investors (13%), including J&T Group, a Czech company.
Key rating assessment factors
The limited business profile assessment (bb) reflects the Bank’s weak franchise in the Russian banking market, coupled with a relatively poorly diversified operating income. The assessment also takes into account the Bank's risk appetite, which the Agency believes is extremely high. For example, regardless unfavorable economic conditions, which limited the desire of other banks to increase the scale of their business, the Bank increased its loan portfolio by 50% in the previous year. ACRA believes that this approach is fraught with increased credit risks, which may emerge in the next 12–18 months as the portfolio seasons, given still not fully recovered business activity in the country. The capital injection expected in Q4 2021 will help the Bank to somewhat reduce the pressure on its capital and mitigate these risks.
Like previously, the Bank’s strategy for this year focuses on SMEs, including those operating in the construction industry, where the Bank boasts an extensive experience and deep understanding of various construction industry segments (including road construction), the transportation sector, and related machine-building industry segments. In addition to the above competencies, the Bank's development model involves an active use of business relationships and connections of its multiple owners, which greatly contributes to client loyalty.
The capital adequacy assessment has been upgraded from satisfactory to adequate and is based on the following factors:
- The Bank's proven ability to generate satisfactory profits corresponding to the average capital generation ratio (ACGR) for the last five years at about 55–60 bps. ACRA expects the ratio to remain above 50 bps in the next 12 months;
- The expected stabilization of the three-year average cost-to-income (CTI) at less than 75% in the next 12 months (for 2018–2020, the CTI amounted to about 76%);
- Net capital injections of about RUB 440 mln expected by the end of 2021, including RUB 590 mln of injections from the current owners and about RUB 150 mln of dividend payments.
According to ACRA's base case forecast, the planned capital support from current owners and a moderate annual growth of the portfolio (about 10% in 2021) will allow the Bank to maintain the N1.2 ratio in the range of 9.5–10.5% in the next 12 months (10.2% as of January 1, 2021).
The risk profile assessment has been downgraded from weak to critical. In addition to the aggressive growth of the loan portfolio in 2020, the downgrade reflects the Bank's increased focus on lending to the construction and real estate sector, which, in the Agency's opinion, is characterized by an increased sensitivity to economic cycles and has structurally high credit risks. According to IFRS financial statements, such loans accounted for about 113% of the Tier 1 equity of the Bank and 23% of the total loan book as of October 1, 2020. ACRA expects these ratios to remain roughly the same over the next 12 months.
On the back of the rapid growth of business volumes, the share of potentially problem loans in the total loan portfolio has slightly decreased and, according to ACRA's estimates, it is in the range of 10–15%. The share of top ten groups of borrowers is about a third of the Bank's loan portfolio, which seems to be a moderate concentration compared to Russian peers. Furthermore, the amount of loans granted to borrowers who are, in ACRA's opinion, directly or indirectly tied to the Bank is equal to at least half of the Bank's Tier 1 equity.
Adequate funding and liquidity position. The Bank has a comfortable cushion of liquidity (liquid assets account for approximately 40% of its balance sheet) and can withstand a significant outflow of client funds in both ACRA’s base case and stress scenarios (liquidity surplus in the stress scenario was 12% of liabilities as of October 1, 2020). In addition, the long-term liquidity shortage ratio does not indicate any critical risks associated with the Bank’s assets and liabilities management (the indicator was equal to 66% as of the same date).
Key assumptions
- Maintaining the current business model within the next 12 months;
- Maintaining the N1.2 ratio above 9% within the next 12 month thanks to, among other things, net capital inflows of RUB 440 mln from the Bank's owners;
- Maintaining the current levels and quality of earnings (five-year ACGR above 50 bps, and three-year average CTI below 75%).
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:
- A decline and stabilization in the volume of loans granted to borrowers from high-risk sectors, including the construction and real estate segment, down to levels not exceeding the Bank's Tier 1 equity as per the Russian regulatory standards;
- Signs of a sustainable decline in the risk appetite, reflected in lower desire to continue fast credit expansion;
- Significant improvement in the loan portfolio quality.
A negative rating action may be prompted by:
- A sustainable decline of N1.2 at below 9% over the 12-month horizon due to insufficient or delayed capital injections, increased credit losses, or business growth significantly higher than currently expected;
- An actual or expected decline in the five-year ACGR below 50 bps;
- An actual or expected three-year average CTI exceeding 75%.
Rating components
SCA: bb-.
Adjustments: none.
Support: none.
Issue ratings
RosDorBank, 02 series (RU000A0ZZZ25), maturity: December 12, 2024, issue volume: RUB 300 mln — В-(RU).
Rationale. The 02 series bond issue (ISIN RU000A0ZZZ25) has been affirmed at B-(RU) based on the affirmation of the issuer’s credit rating. The issue is a Tier 2 capital source, which implies a significant level of subordination with respect to senior unsecured creditors and determines its rating three notches below the credit rating of the Bank.
Regulatory disclosure
The credit ratings were assigned to RosDorBank and the bond (ISIN RU000A0ZZZ25) issued by RosDorBank 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale of the Russian Federation was also used in the process of credit rating assignment.
The credit ratings of RosDorBank and its bond (RU000A0ZZZ25) were published by ACRA for the first time on April 10, 2018, and December 21, 2018, respectively. The credit rating of RosDorBank and its outlook as well as the credit rating of its bond are expected to be revised within one year following the publication date of this press release.
The assigned credit ratings are based on the data provided by RosDorBank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of RosDorBank and the financial statements of RosDorBank drawn up in compliance with Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit ratings are solicited, and RosDorBank participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by RosDorBank in its financial statements have been discovered.
ACRA provided no additional services to RosDorBank. No conflicts of interest were discovered in the course of the credit rating process.
