The credit rating of JSC CB Solidarnost (hereinafter, the Bank) reflects the Bank's limited business profile, adequate capital adequacy, critical risk profile, and adequate position in funding and liquidity.
The Bank is among top 100 Russian credit institutions. It is registered in Samara. The Bank's priority business lines include corporate lending and retail deposits.
Key assessment factors
The limited assessment of business profile (bb) stems from the Bank’s positions in the sector, as well as low-diversified operating income of the Bank (over a half of the income is interest on corporate loans), which is due to the specifics of its business. Among other things, the Bank’s activities are focused on carrying out the financial rehabilitation plan (the FRP), according to which, in addition to a common range of financial services, the Bank serves cash flows and goods turnover between Russia, China, and South East Asian countries, as well as on servicing immigrant workers using the competencies of Bank Joint Stock Company "Moscow Mortgage Agency" (Bank JSC MMA) acquired by the Bank in 2020. The quality of corporate governance generally corresponds to the Bank's business scale and development strategy.
The capital adequacy assessment is adequate. As of February 1, 2022, the Bank's capital ratios exceeded the regulatory standards (N1.2 and N1.1 = 20.53%, N1.0 = 23.39%); in subsequent periods, the ratios remained high. The Tier-1 CAR, according to the Bank's assessment that takes into account the entire amount of provisions for assets as required by the FRP, also remains comparable to the previous rating assessment. ACRA notes a step-by-step stabilization of the Bank's ability to generate capital. At the same time, the operational efficiency remains relatively low due to a high CTI. ACRA notes a downward trend in this ratio and an increase in NIM due to the growth of operating assets. The Bank is able to withstand a significant increase in the cost of credit risk, according to the results of ACRA's stress test.
The critical risk profile assessment. As of March 31, 2022, the loan portfolio quality (over a half of assets) was weak due to a persistently very high concentration on the ten largest borrowers not related to the Bank or its subsidiaries. ACRA observes a decline in the share of Stage 3 loans in the portfolio cleared of the loans issued before the launch of the financial recovery of the Bank or received as a result of the acquisition of Bank JSC MMA and notes that such decline is also caused by a rapid growth of the loan portfolio.
The Agency notes that the Bank’s balance sheet includes a significant volume of non-core assets (investment property, private equity, etc.). The share of such assets in the common equity has declined to some extent but it is still a rating negative factor.
The funding and liquidity position is adequate. Thanks to a large volume of cash and liquid securities on its balance sheet, the Bank has surplus short-term liquidity in both base case and stress scenarios of ACRA. The high level of capitalization allows the Bank to maintain a balanced repayment schedule for its assets — the long-term liquidity shortage indicator is still assessed as strong. The Bank’s resource base is heavily dependent on retail customers, who are the main source of funding. There have been no significant changes in the share of the largest group of lenders/depositors, which includes the Bank's shareholder and its related companies, in the total liabilities including subordinated debt (additional capital), as well as in the concentration on the ten largest groups of lenders.
Key assumptions
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Maintaining the current business indicators of the Bank as part of the FRP.
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Keeping the N1.2 ratio above 12% within the 12 to 18-month horizon.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12-month horizon.
A positive rating action may be prompted by:
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Significant improvement in the Bank's market positions;
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Stronger operating efficiency, sustainably high capital adequacy ratios, and increase in the Bank's capacity to generate capital;
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Sustainable decrease in the concentration of the Bank’s loan portfolio on the ten largest groups of borrowers, and no growth of the non-performing and potentially non-performing loans.
A negative rating action may be prompted by:
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Deteriorating capital position due to a return to unprofitable operations;
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Deteriorating liquidity position and/or higher dependence on funds of the largest groups of lenders/depositors.
Rating components
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 JSC CB Solidarnost was published by ACRA for the first time on May 22, 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 the data provided by JSC CB Solidarnost, information from publicly available sources, as well as ACRA’s own databases. The rating analysis is based on the IFRS financial statements of JSC CB Solidarnost and financial statements of JSC CB Solidarnost composed in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC CB Solidarnost 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 additional services to JSC CB Solidarnost. No conflicts of interest were identified in the course of credit rating assignment.
