The credit rating assigned to "NK Bank" (hereinafter, the Bank) is due to the Bank’s moderately low business profile, adequate capital adequacy, weak risk profile, adequate liquidity, and weak funding assessments.
Key assessment factors
The moderately low business profile assessment (bb) reflects, first, the Bank’s relatively low share in the Russian financial services market. The Bank offers services to corporate and retail customers. The Bank’s main business lines are corporate lending and private banking services. As of November 1, 2021, the Bank was 148th in equity and 134th in assets among Russian banks. The Bank’s business diversification is relatively high. According to ACRA’s calculations, the Herfindahl-Hirschman Index stood at 0.28 as of October 1, 2021.
The Bank's strategy envisages maintaining positions in the corporate segment and in servicing high net worth individuals. Earlier, the Bank actively invested in securities issued by industrial enterprises, including through public-private partnerships.
ACRA assesses the Bank’s capital adequacy as adequate. As of October 1, 2021, the Bank's capital adequacy ratios were healthy (N1.1 and N1.2 of 17.3%). This allows the Bank to withstand an increase in the cost of risk above 500 bps without violating the N1.2 ratio, even in case the Bank is forced to increase significantly its reserves for the loan portfolio.
The Bank’s capacity to generate capital has remained low, because the averaged capital generation ratio (ACGR) for 2016–2020 is 28 bps. The assessment is also constrained by the Bank's low operating efficiency: the average ratio of operating costs to income before provisions exceeds 75% for the last three years.
The Bank’s risk profile assessment has been upgraded due to a decline in the share of non-performing and potentially non-performing loans in the Bank's loan book. According to ACRA's estimates, as of October 1, 2021, the share was about 13% of all loans, of which 5.0% was NPL90+). At the same time, the loan book concentration is still high, which constrains the risk profile assessment. The top 10 groups of borrowers comprise 68% of the total amount of all loans.
As of October 1, 2021, the quality of most assets outside the loan portfolio was high. The share of non-core assets on the Bank's balance sheet did not exceed 10% of the common capital.
Adequate position in liquidity. As of October 1, 2021, the Bank was able to withstand a substantial outflow of client funds both in the base case scenario (over RUB 7 bln in liquidity reserves) and in the stress scenario (excess of 13% of total liabilities). The long-term liquidity is adequate; the long-term liquidity shortage indicator (LTLSI) stood at around 78%.
The Bank's funding profile assessment has been downgraded to weak due to a significant increase in the concentration: the share of top 10 customers (groups) is 57.8% of liabilities (42.6% a year earlier). At the same time, the Bank's dependence on funds of individuals has grown: as of October 1, 2021, their share in the Bank's liabilities was 77.5% (59.6% a year earlier).
Key assumptions
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Sticking to the Bank's current strategy and business model in the next 12–18 months;
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Maintaining the capital adequacy ratio (N1.2) not lower than 12% in the next 12–18 months;
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Positive net profits in 2021–2022.
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:
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Lower share of problem and potentially problem loans;
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Significantly higher concentration of the loan portfolio;
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Lower dependence on the largest groups of depositors and lenders.
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Lower share of funds of individuals in the Bank's liabilities.
A negative rating action may be prompted by:
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Higher share of problem and potentially problem loans;
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N1.2 declining below 12%;
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Significant deterioration in liquidity position;
Rating components
SCA: b+.
Adjustments: none.
Support: none.
Issue ratings
There are no outstanding issues.
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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of "NK Bank" was published by ACRA for the first time on January 22, 2021. 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 "NK Bank", information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS statements of "NK Bank" and the financial statements of "NK Bank" drawn up in compliance with the Bank of Russia's Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and "NK Bank" participated in its assignment.
In assigning the credit rating, 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 "NK Bank". No conflicts of interest were identified in the course of credit rating assignment.
