The credit rating of PJSC Kuznetsky Bank (hereinafter, the Bank) has been upgraded to reflect the upgrade of the Bank's capital adequacy assessment from weak to satisfactory, while the limited business profile assessment, weak risk profile assessment, and adequate liquidity and funding position have remained unchanged.
The Bank is a universal regional bank holding a basic license that operates primarily in the Penza Region. The Bank’s main areas of business are financing and providing guarantees to SMEs, as well as lending to the general public (mainly consumer lending and mortgage lending). In carrying its operations, the Bank mainly attracts client funds. It is worth noting that the Bank is actively developing its transaction business.
Key assessment factors
The Bank’s limited business profile assessment (bb) is primarily based on its limited share in the banking services market. However, due to the universal nature of its business model, ACRA assesses the Bank’s operating income diversification as consistently high. The Bank’s strategy is consistent with macroeconomic trends and assumes the further development of existing business lines. The shareholding structure of the Bank is transparent.
The capital adequacy assessment has been upgraded from weak to satisfactory because the Bank has managed to increase and maintain its N1.2 capital adequacy ratio, including regulatory easing, above 9% over the past 12 months, which allows the Bank to sustain an increase in the cost of risk of 300–500 bps. At the same time, the Bank's capacity to generate capital has also improved mostly due to a significant growth of profits in 2022 and the absence of dividend payments in the past year. CTI (cost-to-income) and NIM (net interest margin) calculated by ACRA for the last three years are at their medium levels compared to peers, although the Agency notes that CTI is tending to increase.
The risk profile assessment has continued to improve but is still weak. The quality of the Bank's loan portfolio has improved significantly, since the share of problem and potentially problem loans has shrunk in 2022, which is positive for the Bank's profits due to the release of reserves. The portfolio concentration on the ten largest groups of borrowers is still low, while the share of loans granted to high-risk industries has increased. The credit quality of the securities portfolio, which consisted mostly of OFZs as of December 31, 2022, is assessed as high; and during the past year, the volume of market exposures was acceptable (much lower that the threshold of 75% of common equity), although in 2023, it is tending to grow. The Agency notes the Bank's continued efforts to reduce the volume of non-core assets that include investment real estate received as compensation. The quality of the Bank’s risk management system is satisfactory.
The Bank’s funding and liquidity position is adequate. The Bank is able to withstand an outflow of client funds in both ACRA’s base case and stress scenarios. As of December 31, 2022, the long-term liquidity shortage indicator stood at the adequate level. We do not observe an increased concentration of the resource base on the largest source, while the Bank’s dependence on the largest groups of lenders is still low. The share of related-party funds, including subordinated deposits, is low, and the volume of funds raised from the regulator in 2022 is insignificant.
Key assumptions
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Pursuing the current business model within the 12 to 18-month horizon.
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Maintaining NIM at around 6–7%.
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Maintaining acceptable capital adequacy ratio (N1.2) 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 increase in capital adequacy, no decrease in capital generation, and growth of operating efficiency;
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Further reduction of problem loans while maintaining low portfolio concentration on the largest groups of borrowers;
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Maintaining the acceptable level of market exposures;
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Further reduction of non-core assets
A negative rating action may be prompted by:
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Lower capital adequacy ratios and capital generation;
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Significant increase in the share of non-performing loans and/or higher concentration of the portfolio on the largest groups of borrowers;
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Deterioration in liquidity and/or funding position.
Rating components
Standalone Creditworthiness Assessment (SCA): bb-.
Adjustments: none.
Support: 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 PJSC Kuznetsky Bank was published by ACRA for the first time on May 22, 2020. 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 PJSC Kuznetsky Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the financial statements of PJSC Kuznetsky Bank drawn up in compliance with the Bank of Russia's Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and PJSC Kuznetsky 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 no additional services to PJSC Kuznetsky Bank. No conflicts of interest were discovered in the course of credit rating assignment.
