The affirmation of the credit rating of JSCB «Energobank» (hereinafter, Energobank, or the Bank) at BB-(RU), outlook Stable, reflects ACRA’s base case expectations that the Bank will continue to maintain strong capital adequacy metrics over the next 12 months, which, coupled with a high level of reserves and state support measures for the sector, will help mitigate the increased risks of the operating environment. The credit rating also takes into account the satisfactory business profile, critical risk profile, and satisfactory funding and liquidity assessment.

Energobank’s operations are concentrated mainly in the Republic of Tatarstan, where it has a recognizable brand and an established business. In the context of the entire banking industry, Energobank occupies a low position: 105th place in equity as of February 1, 2022. Lending to agribusinesses, real estate transactions, including rent, construction and trade, as well as secured retail lending remain key areas of the Bank’s activity.

Key assessment factors

The bb assessment of the Bank’s business profile reflects its relatively low market share in Russia’s banking services market and ACRA’s opinion on the low diversification of business and signs of transactions with parties directly or indirectly related to the Bank. The Bank’s time-tested ability to generate positive financial results (average return on equity in 2017–2021 was approximately 12%) somewhat mitigates risks and speaks in favor of the stability of operations.

The Agency positively assesses the conservative decision of Energobank’s management to reduce lending activity against the backdrop of an uncertain external environment and expects the current business model and industry specifics of the Bank’s activities to be maintained in the next 12 months, with neutral or insignificant growth of the loan portfolio by the end of the year.

The strong capitalization and profitability assessment takes into account consistently high capital adequacy combined with a sustainable ability to generate capital from profits. The Bank's regulatory capital adequacy ratio, N1.2, was 21.1% as of February 1, 2022 (according to ACRA's estimates, the figure has not changed drastically since then). Over the past five years, the Bank’s operations have been profitable, which led to a fairly high value of the average capital generation ratio (AGCR) for this period, about 200 bps.

Profitability metrics are supported by the moderately high net interest margin (NIM of approximately 6.2% over 2019–2021). In addition, the Bank has good efficiency of operations: the average CTI over the past three years is about 43.7%.

Under the base case scenario for the next 12 months, the Agency expects capitalization and profitability metrics to remain approximately at current levels, despite the intention of Energobank to pay dividends of 40–60% of net profits.

The critical risk profile assessment reflects ACRA’s opinion about the low quality of the loan portfolio and its concentration on companies that have signs of direct or indirect relationships with the Bank. At the beginning of the year, the concentration on the ten largest borrowers amounted to approximately 30% of total loans. Credit risks are aggravated by the growth in lending to real estate and construction segments (the Agency estimates that the scale of activities exceeds the size of the Bank’s Tier 1 capital), which, in ACRA’s opinion, are characterized by increased sensitivity to environmental stresses.

The share of potentially non-performing assets, according to the Agency’s estimates, was about 30.8% at the beginning of the year. The coverage of these assets by impairment provisions amounted to approximately 76%. It is worth mentioning that loans to borrowers engaged in agribusiness and dependent on timely government subsidies, as well as having signs of related parties, still account for the bulk of non-performing exposures. At the same time, the share of such loans in the loan portfolio continues to decline compared to the previous year.

Satisfactory funding and liquidity position. The assessment continues to be constrained by high concentrations of Energobank’s resource base: the ten largest groups of creditors formed just over half of total liabilities at the beginning of the year. The risks are somewhat mitigated by a fairly large and granular portfolio of deposits and balances of individuals’ funds (approximately 43% of the funding base on the same date).

Liquid assets, as a rule, make up a third of the balance sheet, and this proportion, according to ACRA’s expectations, will remain unchanged in the next 12 months. Quite large volumes of loans with deferred payments will continue to complicate liquidity management, as well as the assessment of credit risks: according to the Agency’s estimates, at the beginning of the year, almost half of the loan portfolio had the time to maturity of more than three years, and about a third of the portfolio — more than five years.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;

  • Maintaining the strong capitalization and profitability metrics.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Significant decline in the volume of potentially problem loans;

  • ACRA’s opinion on a significant reduction of the volume of loans with signs of related-party transactions;

  • Lower funding concentration on the largest groups of lenders;

  • Better position in long-term liquidity.

A negative rating action may be prompted by:

  • Significant decline in capital adequacy ratios due to unforeseen credit losses or business growth exceeding the base case scenario;

  • Lower business efficiency and profitability;

  • Loss of competitive positions in the Republic of Tatarstan and niches currently occupied by the Bank;

  • Deterioration of liquidity position.

Rating components

Standalone creditworthiness assessment (SCA): bb-.

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 JSCB «Energobank» was first published by ACRA on May 20, 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 data provided by JSCB «Energobank», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of JSCB «Energobank» drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSCB «Energobank» 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 additional services to JSCB «Energobank». No conflicts of interest were discovered in the course of credit rating assignment.

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