The credit rating of MCIB Bank LLC (hereinafter – MCIB Bank, or the Bank) is based on its low standalone creditworthiness assessment (SCA), which is compensated by high likelihood of extraordinary support from the Bank’s controlling shareholder (PJSC Sovcombank; hereinafter – Sovcombank). MCIB Bank is marked by a moderate creditworthiness as compared to other Russian financial institutions.
MCIB Bank is a specialized bank focused on providing banking products to small and medium enterprises including bank guarantees and financing. As of end-March 2017, the Bank occupied 131st position nationwide in terms of own capital. As of end-2016, MCIB Bank stood out as one of the leading banks in terms of number and amount of issued bank guarantees.
Sovcombank owns 50.01% of MCIB Bank’s shares, while remaining shares are distributed among individuals.
Key rating assessment factors
High probability of extraordinary support from the shareholder. PJSC Sovcombank (supporting organization, or SO) is MCIB Bank’s controlling shareholder. The supporting organization has a moderately high creditworthiness (A-(RU)) and, in ACRA’s opinion, is willing to provide the Bank with sufficient long-term and short-term financing as well as increase its capital if required; this opinion is based on:
- Degree of legal affiliation between SO and MCIB Bank and SO’s ability to control operating activities of MCIB Bank;
- High strategic importance of bank guarantees market for SO;
- Considerable operational integration between MCIB Bank and SO (pertaining to corporate governance, credit policy, underwriting, and liquidity and market risk management);
- Potentially high reputational risks for SO if the Bank goes bankrupt.
ACRA’s opinion with regard to SO support is expressed in adding three notches to SCA level of MCIB Bank (bb).
Business profile assessment is attributable to strong franchise in the bank guarantees market and low diversification of operating income. The Bank holds leading positions in terms of number and amount of issued guarantees. We note Bank’s strategic partnership with e-trading platform FINTENDER.RU and Bank’s access to brand and sales channels of PJSC Sovcombank as a significant competitive advantage. At the same time, Bank’s niche specialization translates into low diversification of operating income largely formed by commission income.
Adequate loss absorption cushion. The Bank boasts a substantial Tier-1 capital adequacy cushion (N1.2 ratio equaled 10.7% as of end-March 2017), which allows it to withstand an increase in the cost of risk within 300 bps without violating the regulatory requirements. MCIB Bank’s ability to generate new capital is assessed as strong: in 2015–2016, its averaged capital generation ratio (ACGR) amounted to 190 bps (the Bank changed its controlling shareholders and business model in 2015).
Satisfactory risk profile assessment. The Bank’s risk management system is marked by an adequate level of loan applications underwriting and an additional control exercised by Sovcombank. The Bank’s risk profile assessment is limited by persisting risks of quality deterioration of issued guarantees portfolio driven by an aggressive business expansion in this segment in 2015–2016, and by a sizeable debt securities portfolio (mostly of a high credit quality) which amounted to RUB 6.7 bln at end-March 2017, both being sources of heightened credit risk level (over 100% of core capital).
Strong liquidity position is coupled with a concentrated funding profile. As of end-March 2017, the Bank’s short-term liquidity shortage indicator (STLSI) remained positive both in base case and stress scenarios (liquidity cushion exceeded RUB 20 bln). MCIB Bank’s longer-term liquidity position is also assessed as strong: its long-term liquidity shortage indicator (LTLSI) equaled 184%. Bank’s liabilities are mainly used to fund securities portfolio; 77% of liabilities (as of end-April 2017) were formed by interbank loans involving a limited number of counterparties (the primary creditor is PJSC Sovcombank).
Key assumptions
- Cost of credit risk (taking into account balance sheet assets and off-balance sheet liabilities) within 2%-3%;
- Net interest margin (NIM) within 6–7%;
- Tier-1 capital adequacy (N1.2) above 7% on the 12 to 18-month horizon;
- Leverage over 5% on the 12 to 18-month horizon;
- Maintaining current funding structure.
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:
- Maintaining a moderate risk appetite with business growth rate not exceeding market average;
- Improving the funding source balance;
- Increasing diversification of operating income sources.
A negative rating action may be prompted by:
- Forfeiture of shareholder or operational control on the part of Sovcombank, coupled with a decline in the Bank’s creditworthiness level;
- A significant deterioration of the regulatory capital adequacy, or leverage;
- Forfeiture of competitive positions on the market of bank guarantees;
- Deterioration of loan portfolio and/or security portfolio quality, increase in the cost of risk pertaining to issued guarantees;
- Deterioration of the liquidity position related to a thinning highly liquid asset cushion on the MCIB Bank’s balance.
Rating components
SCA: bb.
Adjustments: none.
Support: +3 notches to the SCA.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships Within Corporate Groups, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to MCIB Bank LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (June 15, 2017).
The assigned credit rating is based on the data provided by MCIB Bank LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS statements of MCIB Bank LLC and statements of MCIB Bank LLC composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and MCIB Bank LLC participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by MCIB Bank LLC in its financial statements have been discovered.
ACRA provided no additional services to MCIB Bank LLC. No conflicts of interest were discovered in the course of credit rating assignment.
