The credit rating of LLC CBED «THE BANK OF KAZAN» (hereinafter, the Bank) is based on the satisfactory business profile, adequate capital adequacy, weak risk profile, and adequate funding and liquidity assessment.

The Bank is a small credit institution operating primarily in the Republic of Tatarstan (ACRA rating: AAA(RU), outlook Stable, hereinafter, Tatarstan) and focused on lending and servicing SMEs.

Key assessment factors

The satisfactory business profile assessment (bb+) stems from the small market share held by the Bank in the Russian banking sector in general, and in Tatarstan in particular, as well as the concentrated nature of its credit profile. At the same time, the Bank has plans to decrease the granularity of its loan portfolio, shifting the focus towards smaller enterprises and portfolio loans and developing its online services to expand the geography of presence. Besides corporate loans (over 80% of the loan book), guarantee issuance continues to be the Bank’s major business line, which contributes to its operational diversification. In the mid-term, the Bank aims at strengthening its positions in the SME segment, including services offered to foreign trade companies.

Adequate capital adequacy assessment. The Bank's regulatory capital adequacy ratios are comfortable: over the past 12 months, the average N1.2 ratio has strengthened slightly. At the same time, over the past five years, the Bank's average capital generation ratio (ACGR) has shown a progressive decline and, taking into account the dividends paid for 2021 and 2022, the ACGR is less than 50 bps. Thanks to a good financial performance, the Bank has improved its CTI last year; however, the three-year average CTI is still low. According to ACRA's stress test, the Bank is able to withstand a 500+ bps increase in the cost of risk and to comply with the regulatory ratios.

The weak risk profile reflects the average level of non-performing assets and the moderate concentration on the ten largest groups of borrowers, as well as a growth of investments in non-core assets.

The share of unsecured loans in the Bank's loan book and the concentration on high-risk industries, including the construction sector, are still in the focus of ACRA’s attention. In the Agency's opinion, such industries may be the most vulnerable to a difficult economic environment.

The risk profile assessment is constrained by an insignificant growth of investments in non-core assets obtained as compensation and held on the Bank's balance sheet.

Adequate funding and liquidity position. The Bank has maintained a sufficient buffer of liquid assets, while its funding comes mainly from deposits (slightly dominated by retail customers), and the Agency assesses it as relatively stable. As of January 1, 2023, the Bank showed a surplus of short-term liquidity in both the base case and the stress scenarios of ACRA, which is facilitated by, among other things, its liquid funds held with the Bank of Russia.

The Bank has maintained the low concentration on the largest group / the top ten groups of lenders in the total volume of liabilities.

Key assumptions

  • Adhering to the current business model over the next 12 to 18 months.

  • Maintaining N1.2 above 9%.

  • The Bank’s capacity to withstand an increase in the cost of risk of no lower than 500 bps above the base case scenario without violating the N1.2 ratio.

  • Maintaining three-year averaged CTI at no higher than 75%.

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:

  • Significant decrease in the volume of non-core investments coupled with non-deteriorating quality of the loan book;

  • Significant and sustained growth in capital and profitability metrics.

A negative rating action may be prompted by:

  • Consistent growth in three-year average CTI to over 75%;

  • Common equity adequacy ratio declining below 9% along with a decline in the capital generation capacity;

  • Increase in the share of non-performing assets and significant increase in the loan book concentration on high-risk industries;

  • Sustained growth of the share of unsecured loans to more than 60% of the loan portfolio.

Rating components

Standalone Creditworthiness Assessment (SCA): bb+.

Adjustments: no.

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 LLC CBED «THE BANK OF KAZAN» was published by ACRA for the first time on May 11, 2017. 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 LLC CBED «THE BANK OF KAZAN», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated statements of LLC CBED «THE BANK OF KAZAN» and the statements of LLC CBED «THE BANK OF KAZAN» drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and LLC CBED «THE BANK OF KAZAN» 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 no ancillary services to LLC CBED «THE BANK OF KAZAN». No conflicts of interest were identified in the course of credit rating assignment.

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