The credit rating of LANDCOMBANK LLC (hereinafter, LANDCOMBANK, or the Bank) reflects the low assessment of its business profile, strong capital adequacy position, satisfactory risk profile, and an adequate funding and liquidity position.
LANDCOMBANK is a small bank with a basic banking license that operates in Rostov-on-Don. The Bank’s core areas of activity include servicing local companies, mainly from the agricultural sector, provision of trade finance and factoring, rendering cash and settlement services for individuals and legal entities, and placing deposits in credit institutions.
KEY ASSESSMENT FACTORS
The assessment of the business profile at b is due to the Bank’s weak market positions in the Russian banking market. Operating income diversification is assessed as low. The bulk of revenues in 2022 came from interest income generated by receivables from banks and financial institutions. The management system is assessed conservatively as the Bank frequently rotates its senior management team. The shareholder structure is transparent, and the resource base includes the share of related parties, which, according to ACRA, has a constraining effect on the business profile assessment.
Strong capital adequacy assessment. The Bank consistently maintains high regulatory capital adequacy ratios that allow it to withstand growth in the cost of risk of over 500 bps. LANDCOMBANK also demonstrates a confident ability to generate internal capital — the averaged capital generation ratio (ACGR) was strong from 2018 to 2022. Negative factors include low operational efficiency, which is expressed in a heightened CTI ratio over the past three years and a relatively low NIM compared to peer banks.
The satisfactory risk profile reflects LANDCOMBANK’s conservative policy toward accepting new risks. The share of the loan portfolio in the total structure of assets is small, and the main clients are representatives of the agricultural industry who are in some way connected with the owner’s companies. Short-term deposits with the Bank of Russia, as well as funds in Nostro accounts with non-resident banks, account for most of the balance sheet. A constraining factor the risk profile assessment is a high concentration on individual counterparties. ACRA assesses the quality of risk management as satisfactory.
The adequate funding and liquidity position is based on significant volumes of liquid assets on the Bank’s balance sheet. LANDCOMBANK is able to withstand an outflow of client funds in both ACRA’s base case and stress scenarios. The long-term liquidity shortage indicator was strong as of the end of 2022. The resource base is characterized by a high level of concentration and volatility, as funds raised are mainly represented by current account balances. Almost the entire amount of funds used falls on the share of the largest group of creditors, who are also related parties. Since the concentration on the largest sources of funding is already taken into account in the assessment of the concentration on the funds of the largest depositors, the Agency has not downgraded the assessment of funding in this part.
KEY ASSUMPTIONS
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Maintaining the current business model over the next 12 to 18 months;
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Maintaining capitalization and profitability metrics at current levels.
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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Improvement of the Bank’s market positions due to growth of volumes of new business coupled with an adequate level of risk for active operations;
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Diversification of the resource base and lower concentration on the largest groups of creditors.
A negative rating action may be prompted by:
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Lower capital adequacy and capital generation ratios;
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Lower quality of assets due to growth of credit risks of counterparty banks.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb-.
Individual adjustments: none.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to LANDCOMBANK LLC 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.
A credit rating has been assigned to LANDCOMBANK LLC for the first time. 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 LANDCOMBANK LLC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of LANDCOMBANK LLC drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and LANDCOMBANK LLC 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 LANDCOMBANK LLC. No conflicts of interest were discovered in the course of credit rating assignment.
