The credit rating of AK BARS Bank (hereinafter, AK BARS Bank, or the Bank) is based on the adequate assessments of the business profile, capital position, funding and liquidity position, as well as the weak assessment of the risk profile. The rating is supported by the high likelihood of extraordinary support from the shareholder.
The outlook has been changed to Developing to reflect ACRA’s opinion on the possible influence of a number of factors that determine whether the credit rating of AK BARS Bank will change or remain the same over the next 12 to 18 months. The Bank’s rating may be upgraded if the quality of the loan portfolio consistently improves and other standalone creditworthiness factors do not deteriorate, including in the event of a recovery of capital adequacy. The negative scenario assumes a decline of AK BARS Bank’s capital adequacy on the back of rapid growth of the size of the credit portfolio and/or as a result of additional losses from the formation of reserves or negative revaluation of assets.
AK BARS Bank is a large regional universal bank focused on SME and consumer lending services, mostly mortgage loans. The Bank is among Russia’s 30 largest banks in terms of equity and the 20 largest banks in terms of assets. The Bank operates in five of Russia’s federal districts with a network of 215 offices.
key assessment factors
High likelihood of extraordinary support for the Bank. ACRA assesses the Bank’s role in the regional financial services market as rather significant, and the risks for the economy of the main region of presence (hereinafter, the MRP) as significant in the event of deterioration of the Bank’s financial standing. In ACRA’s opinion, a default of AK BARS Bank would cause noticeable disruption to the banking system of the MRP. The Bank performs an important transactional function for the region’s budget funds and holds about 15% of its total retail deposits. AK BARS Bank participates in a number of socially important regional projects, in which it services significant shares of payments made by the local population. The Bank has received substantial volumes of financial assistance from its shareholder on numerous occasions in previous years.
The adequate business profile (bbb) is characterized by the Bank’s stable franchise in the banking market of the MRP. The assessment is supported by the high diversification of the Bank’s operating income. The strategy of AK BARS Bank is aimed at developing its business as a universal credit institution, in both the MRP and at federal level. The Bank is currently actively increasing lending and expanding the range of other financial services offered to individuals and companies. In addition, starting from 2021, the Bank began developing its guarantee business. The Bank’s new strategy, from 2022 to 2026, involves maintaining its universal nature while actively developing lending, expanding the scope of business, and boosting profits.
Adequate assessment of the loss absorption buffer. The Bank’s RAS capital adequacy had not undergone and major changes over the past 12 months as of October 1, 2022. AK BARS Bank takes advantage of regulatory easing provided by the Bank of Russia, therefore, as these measures are canceled, the Agency expects these indicators to decrease in the short term. Planned and actual active expansion of the loan portfolio and, as a result, the volume of risk-weighted assets also have a negative impact on the capital adequacy under both RAS and IFRS. In particular, due to this factor and the financial result of the current year, the capital adequacy ratio under IFRS decreased by more than 2 pps over H1 of 2022. The averaged capital generation ratio (ACGR), calculated for 2017–2021, is largely unchanged. At the same time, the Bank’s capacity to generate capital has deteriorated considerably in 2022, which over a long-term horizon may lead to a lower ACGR assessment. AK BARS Bank maintains relatively low operational efficiency. According to a stress test performed in line with ACRA’s methodology, the current loss absorption buffer continues to allow the Bank to withstand an increase in the cost of risk within the range of 300–500 bps in the next 12–18 months without breaching regulatory ratios.
The weak risk profile is determined by the acceptable quality of the Bank’s loan portfolio and its moderate concentration coupled with active growth of the volume of loans, as well as significant non-core investments on the balance sheet.
The Bank continues to actively increase the size of its retail and corporate loan portfolios, which should be maintained over the next 12 to 18 months as per the current strategy.
As of July 1, 2022, there was slight growth of the Bank’s investments in non-core assets due to the transfer of land plots and real estate, which previously served as loan collateral, to its balance sheet. This limits the assessment of the risk profile. The growth of the share of debt of construction industry companies in the loan portfolio does not currently influence the Bank’s risk profile assessment. ACRA assesses the quality of the Bank’s risk management system as satisfactory.
Adequate funding and liquidity position. The structure of the Bank’s resource base over the past 12 months has not experienced any major changes. Funds of shareholders and companies controlled by shareholders have represented the bulk of the Bank’s funding for a long time. This allows the Agency to assesses the long-term liquidity shortage risk as low. According to ACRA’s estimates, AK BARS Bank is also capable of withstanding cash outflows over a relatively short-term horizon due to its significant volume of liquid assets.
Funds of legal entities and state-funded companies account for the lion’s share of the funding base. The Bank continues to have an increased concentration on the largest groups and ten largest groups of creditors in the total volume of liabilities. At the same time, ACRA’s assessments show that the funds of the largest lenders are currently rather highly stable.
key assumptions
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Maintaining the current business model aimed at increasing the share of market business;
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Maintaining the current shareholding structure.
potential outlook or rating change factors
The Developing outlook assumes a variety of trends: the rating may stay unchanged, be upgraded or downgraded.
A positive rating action may be prompted by:
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Quality of the loan portfolio consistently improving and other standalone creditworthiness factors not deteriorating, including in the event of a recovery of capital adequacy;
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Considerably slower growth of the loan portfolio;
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Significant decline of investments in non-core assets.
A negative rating action may be prompted by:
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Declining capital adequacy ratios;
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Steady deterioration of capacity for independent capital generation;
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Growth of problem and potentially problem assets;
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Continued growth of investments in non-core assets;
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Significant growth of the loan portfolio’s concentration on high-risk industries;
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Deterioration of the liquidity position.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb.
Adjustments: none.
Support: the Bank’s credit rating has been set three notches higher than the SCA in view of support of a region of the Russian Federation in the form of companies controlled by government bodies of the region of presence.
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, Methodology for Analyzing Rated Entities Associated with a State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of AK BARS Bank was published by ACRA for the first time on December 11, 2018. 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 AK BARS Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of AK BARS Bank and the financial statements of AK BARS Bank drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and AK BARS Bank participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to AK BARS Bank. No conflicts of interest were discovered in the course of credit rating assignment.
