The credit rating of PJSC SCB "Metallinvestbank" (hereinafter, the Bank) is based on the Bank's sustainable business profile, strong capital adequacy, adequate risk profile, and adequate funding and liquidity position.
Key assessment factors
The Bank’s satisfactory business profile assessment is determined by the medium position currently occupied by the Bank in the Russian banking market (47th in capital and 46th in assets as of November 1, 2021). Over the past year, the Bank has strengthened its positions in the banking market through a steady growth of the loan portfolio. The Bank’s head office is located in Moscow, and its five branches are in Belgorod, Vyksa, Nizhny Novgorod, Perm, and Novosibirsk. The Bank focuses on lending to corporate and retail customers, factoring, issuing bank guarantees, as well as transactions in securities, foreign currencies, and derivatives.
The Bank’s business is relatively well-diversified: the Herfindahl-Hirschman Index amounted to 0.29 for 9M 2021. At the same time, ACRA notes that the concentration of the Bank’s revenues generated by the corporate loan portfolio has been growing on trading enterprises, mainly through factoring transactions and project construction.
The ownership structure is transparent. The corporate management system corresponds to the business scale and scope of the Bank. Its development strategy until 2025 includes an organic growth, and ACRA assesses it as adequate.
The Bank’s loss absorption capacity has been maintained relatively high. Under RAS standards as of November 1, 2021, the N1.2 ratio was 12.03%; however, under Basel standards, the IFRS Tier 1 capital adequacy ratio has declined over the past 12 months from 9.4% to 8.6% as of September 30, 2021 due to a growth in risk-weighted assets. ACRA’s stress test showed that the Bank could absorb a significant increase in the cost of risk (by more than 500 bps) without violating regulatory standards. The Bank’s ability to generate capital from retained earnings is assessed as moderate: the averaged capital generation ratio (ACGR) under IFRS amounted to 108 bps for the last five years.
The Bank’s net interest margin (NIM) is comparable to that of its peers, equaling close to 5% for the last three years, and the three-year average CTI (cost-to-income) ratio is about 50%. According to the Bank's projections, NIM may decline slightly in the medium term, taking into account market conditions and the Bank's plans to reduce the growth rate of mortgage lending.
The adequate risk profile is based on the satisfactory assessment of the risk management system and the good quality of assets. According to ACRA's estimates, the share of problem loans has declined over the past 12 months to 5% of the total loan portfolio as of October 1, 2021, which is partially associated with a material growth in the loan portfolio in this period. The coverage of Stage 3 loans for 9M 2021 amounted to conservative 100%. The concentration of the loan portfolio on the top 10 groups of related borrowers is assessed as moderate (about 12% of the total loan portfolio). At the same time, the concentration of credit risks on the largest group in the factoring segment is increased. ACRA notes that the growth rate of the loan portfolio has remained high over the past 12 months (about 34%) and takes this fact into account in its assessment.
The loan portfolio shows a low but growing level of concentration on high-risk industries (about 59% of Tier 1 capital under IFRS). The securities portfolio is about one third of Bank’s assets, and it includes Russian government bonds and high-quality corporate bonds. The market risk has been showing an upward trend in 2021, but it slowed down by year-end and had not affected the risk profile assessment.
The funding and liquidity position is adequate. The Bank has a short-term liquidity surplus both in ACRA’s base case and stress scenarios (the Short-Term Liquidity Shortage Indicator (STLSI) of RUB 33,104 mln and 10.1%, respectively) and an adequate long-term liquidity profile. In addition, the Bank of Russia has opened to the Bank a securities-backed overdraft for RUB 4 bln. The concentration of funding on the largest lenders / groups of lenders (12.6% for the largest group and 28.6% for the 10 largest groups) is assessed as moderate.
Key assumptions
-
Maintaining the current structure of shareholder control;
-
Maintaining the current business model over the next 12 to 18 months;
-
Share of problem loans no 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:
- Organic growth in the Bank's business in the long term amid sustainable quality of the loan portfolio and other balance sheet and off-balance sheet assets.
A negative rating action may be prompted by:
-
Tier 1 capital adequacy ratio declining below 8% and lower capital generation capacity;
-
Deteriorating asset quality (including a higher share of problem loans) and a continued upward trend in the loan portfolio growth;
-
Exposure to market risk exceeding 75% of Tier 1 capital;
-
Deteriorating liquidity position and growing concentration of the resource base on the largest lenders.
Rating components
SCA: a-.
Adjustments: none.
Issue ratings
Rationale. The issues listed below are senior unsecured debt of Metallinvestbank. Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Bank in terms of priority. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of Metallinvestbank — A-(RU).
Exchange-traded interest-bearing certified unregistered bond, series BО-03 (ISIN RU000A0ZZL05), maturity date: September 4, 2023, issue volume: RUB 3 bln — A-(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration, series BO-P02 (ISIN RU000A103DH7), maturity date: July 9, 2022, issue volume: RUB 3 bln — A-(RU).
Exchange-traded interest-bearing non-convertible uncertificated bond subject to centralized title registration, series BO-P03 (ISIN RU000A103DJ3), maturity date: July 9, 2023, issue volume: RUB 3 bln — A-(RU).
Rationale. The issue specified below is the Bank's additional Tier-2 capital instrument subordinated to priority unsecured creditors of the Bank. According to ACRA’s methodology, the credit rating of such issue is three notches below the final credit rating of Metallinvestbank.
Subordinated interest-bearing bond, series С-01 (RU000A103JK8), maturity date: February 27, 2032, issue volume: USD 30 mln — ВВВ-(RU).
Regulatory disclosure
The credit ratings have 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the bond issues.
The credit ratings assigned to PJSC SCB "Metallinvestbank" and the bonds issued by PJSC SCB "Metallinvestbank" (ISIN RU000A0ZZL05, RU000A103DH7, RU000A103DJ3, RU000A103JK8) were published by ACRA for the first time on February 2, 2018, September 10, 2018, July 12, 2021, July 12, 2021, and October 11, 2021, respectively. The credit rating of PJSC SCB "Metallinvestbank" and its outlook and the credit ratings of the above bonds issued by PJSC SCB "Metallinvestbank" are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on the data provided by PJSC SCB "Metallinvestbank", information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS statements of PJSC SCB "Metallinvestbank" and the financial statements of PJSC SCB "Metallinvestbank" drawn up in compliance with Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit ratings are solicited, and PJSC SCB "Metallinvestbank" participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no ancillary services to PJSC SCB "Metallinvestbank". No conflicts of interest were identified in the course of credit rating assignment.
