The affirmation of the credit rating of «FORA-BANK» Joint-Stock Commercial Bank (hereinafter, FORA-Bank, or the Bank) at B+(RU), outlook Stable, reflects ACRA’s base case expectations regarding the Bank retaining its current business model in the absence of a deterioration of the capital position over the next 12 to 18 months. The credit rating is based on the moderately low assessment of the business profile, satisfactory capital adequacy position, critical risk profile assessment, and the adequate funding and liquidity assessment.
FORA-Bank is a credit institution that ranked 82nd in terms of capital as of the start of February 2022. It operates within the perimeter of a big diversified group of companies. The Bank specializes in servicing small and medium-sized enterprises, with a focus on the construction sector and real estate operations, along with trade and agriculture. The Bank also provides settlement and cash services to legal entities. In the Agency’s opinion, in developing its business, among other things the Bank quite actively relies on the ties between its owners and the main beneficiary, who is also the main owner of the abovementioned affiliated group.
key assessment factors
The moderately low business profile assessment (bb) is primarily based on the Bank’s current market positions in the Russian banking sector (82nd in terms of capital as of the start of February 2022), as well as due to the signs of a significant concentration of activities on transactions involving companies, which in ACRA’s opinion, are directly or indirectly linked to the beneficiaries of the Bank. Therefore, the Agency assumes that one of the important factors for FORA-Bank’s development is leveraging the business relationships and ties of its main owners, which largely contribute to attracting and retaining clients.
FORA-Bank’s strategy continues to be built around moderate growth of the credit portfolio and other areas of business as the Bank strives to become a more noticeable player in the financial services market. ACRA believes that in the future, the Bank will continue to rely on relatively stable positions and accumulated expertise in the segments of construction and real estate transactions, including support of transactions of its clients with the provision of the necessary related services and banking products. However, the Bank’s significant and previously consistently generated income from currency transactions for its clients will be constrained due to current external restrictions and the unfavorable geopolitical situation.
Satisfactory assessment of capitalization and profitability. In the Agency’s opinion, in the absence of unforeseen credit losses over the next 12 to 18 months, the Bank will maintain its current capitalization metrics, including regulatory ratios. ACRA’s forecast takes into account possible difficulties in carrying out currency transactions starting this year, expected dividend payments, and a certain degree of capital support from shareholders in the form of transferring real estate to the balance sheet in 2022. At the same time, ACRA notes that the quality of this replenishment of capital will directly depend on the risks of revaluation of real estate in the future and will be a factor in putting potential pressure on the Bank’s metrics amid an unpredictable external environment.
Critical risk profile assessment. The Bank has a rather substantial volume of credit exposures with signs of connection to the companies of its beneficiaries, which is a significant constraining factor with regard to the assessment and, among other things, indicates very high concentrations in the loan book. In addition, the Bank’s focus on the construction and real estate sector, which ACRA views as sensitive to changes in the economy, is a source of enhanced risks.
The Agency’s estimate of the share of potentially problem debt in total loans has not changed substantially compared to a year ago, although ACRA notes a gradual decrease in this ratio.
Adequate assessment of funding and liquidity. The main source of funding continues to be relatively granulated funds of individuals and sole proprietors, which adds to the stability of the Bank’s resource base. According to ACRA’s assessments, liquidity indicators continue to be at relatively comfortable levels.
key assumptions
-
Maintaining the current business model over the next 12 to 18 months;
-
No signs of deterioration of capitalization and profitability over the next 12 to 18 months.
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:
-
Better quality of assets and improved diversification of the loan portfolio amid a stabilization of economic risks;
-
Sustainable improvement of profitability indicators related to core activities;
-
Significant decline in lending to the construction and real estate operations segment coupled with lower amounts of exposures, which have signs of related-party assets.
A negative rating action may be prompted by:
-
Deterioration of capitalization and profitability due to unforeseen credit losses, aggressive growth, and an insufficient or poor-quality capital injection;
-
Weaker business due to the negative impact of the operating environment, for example, significant and steady deterioration of the development prospects of the segment related to currency transactions for clients;
-
Volatility of the client base, in particular, the funding base.
rating components
SCA: b+.
Adjustments: none.
Support: none.
issue ratings
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned to «FORA-BANK» Joint-Stock Commercial Bank 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 «FORA-BANK» Joint-Stock Commercial Bank was published by ACRA for the first time on July 9, 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 data provided by «FORA-BANK» Joint-Stock Commercial Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of «FORA-BANK» Joint-Stock Commercial Bank and the financial statements of «FORA-BANK» Joint-Stock Commercial Bank drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and «FORA-BANK» Joint-Stock Commercial 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 additional services to «FORA-BANK» Joint-Stock Commercial Bank. No conflicts of interest were discovered in the course of credit rating assignment.
