The credit rating of JSC KOSHELEV-BANK (hereinafter, the Bank) is based on its satisfactory capital adequacy metrics, adequate position in funding and liquidity, moderately low assessment of business profile, and weak risk profile.
The credit rating outlook has been changed to Positive to reflect ACRA's opinion that the Bank's risk profile assessment is likely to improve in the next 12–18 months in case of a stronger declining trend in the share of loans issued by the Bank to high-risk industries.
The Bank is a regional credit institution offering its financial services primarily in the Samara Region.
KEY ASSESSMENT FACTORS
The moderately low business profile assessment (bb) is based mainly on the Bank’s weak position in the Russian financial services market (it ranks 169th in terms of equity). The Bank is developing as a universal credit institution, providing financial services to both corporations and individuals. The Bank’s development is focused on SME lending, consumer mortgage lending, and securities trading. The Agency is of the opinion that the Bank’s strategy generally meets the macroeconomic and regional prerequisites for development, and that the quality of corporate governance corresponds to the Bank’s scale and its areas of activity. The Bank’s diversified sources of operating income remains a positive factor in assessing the business profile. The Agency notes that the operating income is still under a strong pressure from the negative revaluation of the securities portfolio, as well as currency transactions.
ACRA assesses the Bank’s capital adequacy as satisfactory based on adequate regulatory capital ratios and weak operating performance indicators. On the back of relatively high profits shown by the Bank in H1 2022, ACRA expects that the averaged capital generation ratio will stabilize. In addition, the Bank has managed to reverse the trend of declining CTI this year, although the average CTI for the period from 2019 to 2021 is still high. The marginality of the Bank's operations is maintained at the moderate level. ACRA’s stress test shows that the Bank’s significant loss absorption cushion together with its current ability to generate new capital allows it to withstand an increase in credit risk of 300−500 bps.
The risk profile assessment has remained weak, which reflects mostly a high volume of loans granted to construction and real estate companies, as well as accepted market risks. Regardless some growth in Stage 3 loans this year, the overall quality of the Bank's loan book has remained stable in the ten months of 2022. ACRA notes a moderate increase in the portfolio's concentration on the top ten groups of related borrowers, although this indicator is observed to decline in H2 2022. The volume of loans provided to companies working in the construction and real estate sector is still higher that its Tier 1 capital. According to the Agency's estimates, this indicator is tending to decline due to both a shrink in lending and an increase in the volume of current assets. ACRA also takes into account the considerable volume of market risk accepted by the Bank, noting that the Bank’s securities portfolio includes instruments of a solid credit quality.
ACRA assesses the Bank’s funding and liquidity position as adequate. The position in liquidity is strong, which is confirmed by the short-term liquidity shortage indicator (STLSL) that demonstrates an excess of liquidity in both the base case and the stress scenarios. The strong short-term liquidity position is due to the large amount of securities held on the Bank's balance sheet that can be used to attract additional funds. ACRA also notes that assets and liabilities are well-balanced by their maturities. The concentration of the Bank’s funding sources is declining but is still rather high, while retail funds remain the key funding source for the Bank. In 2022, the concentration on the largest and the top ten lenders/depositors has been growing, although this has not affected the Bank's standalone creditworthiness.
KEY ASSUMPTIONS
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Maintaining the current business model within the 12 to 18-month horizon.
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Maintaining the profitability of operations.
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N1.2 not lower than 9% within the 12 to 18-month horizon.
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Maintaining the high volume of highly liquid assets.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Decrease in lending to high-risk industries (construction and real estate);
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Substantial decrease in accepted market risk;
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Improved operating efficiency;
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Better capital adequacy metrics and the sustainable trend towards stronger capital generation ability.
A negative rating action may be prompted by:
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Deterioration in loan portfolio quality;
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Higher loan portfolio concentration;
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Higher volume of accepted market risk and/or materialization of such risk;
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Higher concentration on funds of the largest lenders/depositors.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb-.
Adjustments: 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 KOSHELEV-BANK was published by ACRA for the first time on December 5, 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 JSC KOSHELEV-BANK, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of JSC KOSHELEV-BANK and the financial statements of JSC KOSHELEV-BANK drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC KOSHELEV-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 JSC KOSHELEV-BANK. No conflicts of interest were discovered in the course of credit rating assignment.
