The affirmation of the credit rating of JSCB “Energobank” (hereinafter, Energobank, or the Bank) at BB-(RU), outlook Stable, reflects ACRA’s base case expectations that the Bank will continue to maintain strong capital adequacy metrics over the next 12 months, which, coupled with a high level of reserves and state support measures for Energobank’s agriculture sector borrowers, will help mitigate the increased risks of the operating environment. The credit rating also takes into account the satisfactory business profile, critical risk profile, and satisfactory funding and liquidity assessment.
Energobank’s operations are concentrated mainly in the Republic of Tatarstan, where it has a recognizable brand and an established business. In the context of the entire banking industry, Energobank occupies a low position. Lending to agribusinesses, real estate transactions, including rent, construction and trade, as well as secured retail lending remain key areas of the Bank’s activity.
key assessment factors
The bb assessment of the Bank’s business profile reflects its relatively low market share in Russia’s banking services market and ACRA’s opinion on the low diversification of business and signs of transactions with parties directly or indirectly related to the Bank. Energobank’s time-tested ability to generate relatively comfortable financial results somewhat mitigates risks and evidences the stability of operations.
The Agency expects the current business model and industry specifics of the Bank’s activities to be maintained along with the intensification of lending activities in the next 12 months, following a relatively neutral performance last year stemming from adapting to sharp changes to the external environment.
The strong capitalization and profitability assessment takes into account consistently high capital adequacy combined with a sustainable ability to generate capital from profits. The latter is supported by relatively comfortable operating efficiency indicators (net interest margin and the ratio of operating expenses to operating revenue), as well as the owners’ intention not to demand dividend payments from Energobank in the next 12–18 months under the base case scenario.
Over the next 12 to 18 months, the Agency expects capitalization and profitability metrics to remain approximately at current levels.
The critical risk profile assessment reflects ACRA’s opinion regarding the low, although somewhat improving since last year, quality of the loan portfolio and the Bank’s concentrations on companies that have signs of direct or indirect affiliation with Energobank. The concentration on the ten largest borrowers has not undergone significant changes. Credit risks are aggravated by the significant volume of lending to real estate and construction segments, which, in ACRA’s opinion, are characterized by increased sensitivity to environmental stresses.
It is worth emphasizing that loans to borrowers with signs of related parties and dependent on government subsidies to support agriculture still account for the bulk of potential non-performing exposures. At the same time, the Bank maintains the share of debt actually overdue for more than 90 days in the loan portfolio at a low level.
Satisfactory funding and liquidity position. The assessment continues to be constrained by high concentrations of Energobank’s resource base on the funds of the largest legal entities. As in the year before, the risks are somewhat mitigated by a fairly large and granular portfolio of deposits and balances of individuals’ funds.
The share of liquid assets relative to the total balance sheet is broadly stable, and, according to ACRA’s expectations, will remain roughly unchanged in the next 12 months. According to the Agency’s estimates, a rather large part of the loan portfolio had a significant remaining maturity (more than three years) at the start of the year.
Key assumptions
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Maintaining the current business model within the 12 to 18-month horizon;
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Maintaining the strong capitalization and profitability metrics.
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:
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Significant decline in the volume of potential non-performing loans;
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ACRA’s opinion on a significant reduction in the volume of loans with signs of related-party transactions coupled with lower concentration on high-risk lending segments;
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Lower funding concentration on the largest groups of lenders or better long-term liquidity position.
A negative rating action may be prompted by:
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Significant decline in capital adequacy ratios due to unforeseen credit losses or business growth exceeding the base case scenario;
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Loss of competitive positions in the Republic of Tatarstan and niches currently occupied by the Bank;
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Deterioration in liquidity position.
Rating components
Standalone creditworthiness assessment (SCA): bb-.
Adjustments: none.
Support: 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 JSCB “Energobank” was first published by ACRA on May 20, 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 JSCB “Energobank”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of JSCB “Energobank” drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and JSCB “Energobank” 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 JSCB “Energobank”. No conflicts of interest were discovered in the course of credit rating assignment.