The A(RU) credit rating of PJSC “MTS Bank” (hereinafter, MTS Bank, or the Bank) reflects the adequate business profile assessment, strong capital adequacy assessment, satisfactory funding and liquidity assessment, and low risk profile assessment. The Agency also takes into account the potential extraordinary support for MTS Bank from the parent company (hereinafter, the Group, Supporting Entity, or the SE) with an AAA(RU) credit rating, which is expressed in the addition of four additional notches to the Bank’s standalone creditworthiness assessment (SCA).

MTS Bank is a relatively large Russian bank that is among the 30 largest Russian banks by assets and the 10 largest Russian banks by portfolio size of main types of unsecured loans provided to individuals.

KEY ASSESSMENT FACTORS

The adequate business profile assessment (bbb) is largely determined by MTS Bank’s stable positions in the Russian banking services market and the high diversification of operational income sources. According to ACRA’s estimates, MTS Bank is among the country’s 30 largest banks by equity and among the 15 largest Russian banks in terms of loans provided to individuals. The Bank’s strategy focuses on rendering financial services to individuals, and is integrated into the Group’s overall strategy, which allows MTS Bank to receive income from the development of the Group’s core businesses. Despite the emphasis on retail customers, the Bank demonstrates high diversification of operational income, which is supported by significant fee income. The management quality matches the scale and complexity of the Bank’s operations. The ownership structure of MTS Bank is transparent.

ACRA assesses the Bank’s capital adequacy as strong. The N1.2 ratio declined from 13.79% as of January 1, 2023 to 9.17% as of December 1, 2023, which was largely due to rapid growth of the loan portfolio (amid an 11.6% increase in assets from January to September 2023, the value of assets at risk (RWA) increased by 27.9%). ACRA expects a moderate decline in N1.2 over the next 12 months, primarily on the back of more active growth of the loan portfolio. MTS Bank’s ability to absorb unexpected losses is supported by an increase in its ability to generate capital. The Bank’s RAS profit for 9M 2023 amounted to RUB 12.3 bln, which is a record. The Agency notes an improvement in the operational efficiency of MTS Bank, thanks to which it expects the Bank’s profitability to remain rather high in 2024. Despite the decline in capital adequacy ratios, growth of profitability and the existing level of reserves for non-performing loans allow MTS Bank to withstand an increase in the cost of credit risk of over 500 bps, as demonstrated by the stress test conducted in accordance with ACRA’s methodology.

MTS Bank’s low risk profile assessment is determined by its business specifics. The loan portfolio quality is assessed by ACRA as satisfactory, which reflects the acceptable level of non-performing loans and the low concentration of the loan portfolio. The Agency notes that in 2023 the share of Stage 3 loans, as well as that of the fourth and fifth quality categories, was relatively stable. The focus on lending to individuals determines the low proportion of the ten largest borrowers in the total volume of the loan portfolio.

In the risk profile assessment, ACRA took into account the high share of unsecured loans in the portfolio, the rapid growth of loan assets (growth of the unsecured loan portfolio outstrips market averages), as well as the Bank’s plans for their further active growth.

The amount of investment property held on the Bank’s balance sheet also has a negative impact on the risk profile assessment.

At the same time, ACRA notes that the quality of loans granted to other banks and the bonds held on the balance sheet is high, the concentration on lending to related parties is acceptable, and exposure to market risk is low.

ACRA assesses MTS Bank’s funding and liquidity position as satisfactory, despite a decline in liquidity ratios (N2 had declined from 83.13% to 43.47% as of December 1, 2023). The Agency also notes a certain shortage of liquid assets in the base case and stress scenarios for calculating liquidity ratios, which is partly compensated by the high share of funds raised from related parties in liabilities, which, according to ACRA, are relatively stable. The Agency also notes some imbalance of assets and liabilities by maturity.

In terms of the funding assessment, ACRA notes the Bank’s well-balanced resource base for certain sources of funds (the Bank raises funds from both individuals and corporates to fund its operations). At the same time, the concentration on the funds of the largest lenders/depositors is heightened.

High degree of support from shareholders. The Supporting Entity is a company with an AAA(RU) credit rating. Additional factors that determine ACRA’s high assessment of the degree of support include a certain risk to the full implementation of the SE’s strategy, significant reputational risk the SE may be exposed to if MTS Bank defaults, and the risk of negative financial consequences for the SE in view of the role that the Bank plays in shaping the Group’s financial result and balance sheet.

ACRA’s opinion on the degree of support from the controlling owners is expressed in the addition of four notches to MTS Bank’s SCA.

KEY ASSUMPTIONS

  • The Bank’s shareholding structure and business model to remain unchanged in the 12 to 18-month horizon;

  • N1.2 ratio above 8%;

  • Maintaining stable profitability;

  • The concentration of the loan portfolio and customer funds to remain low.

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:

  • Better risk profile assessment (including better quality of the loan portfolio and lower volume of non-core assets);

  • Higher volume of highly liquid assets coupled with stronger balance of assets and liabilities by maturity;

  • Lower concentration on the largest lenders/depositors.

A negative rating action may be prompted by:

  • Lower importance of the Bank to its key shareholders;

  • Lower ability of the SE to support the Bank if its business expands;

  • Worse capital adequacy metrics and capital generation capacity due to, among other things, a decrease in the Bank’s operational efficiency;

  • Deterioration of the Bank’s liquidity position.

RATING COMPONENTS

SCA: bbb-.

Support: +4 notches to the SCA.

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 PJSC “MTS Bank” was published by ACRA for the first time on January 19, 2023. 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 PJSC “MTS Bank”, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of PJSC “MTS Bank” and the financial statements of PJSC “MTS Bank” drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited and PJSC “MTS 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 PJSC “MTS Bank”. No conflicts of interest were discovered in the course of credit rating assignment.

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