The credit rating of PJSCB "Primorye" (hereinafter, the Bank) has been upgraded to reflect an uplift of the capital adequacy assessment to strong and the maintenance of moderately low business profile, satisfactory risk profile, and satisfactory funding and liquidity assessments.
The Bank is among top 150 Russian banks. The Bank is focused on corporate lending services (mostly, in the far-eastern region), and trading in securities and interbank markets.
key assessment factors
The moderately low business profile assessment (bb-) is determined by the small share of the Bank in the Russian banking market. The Agency notes the medium diversification of the Bank’s sources of operational income that mainly include investments in debt securities and corporate lending services. There is a certain risk of regional concentration since the largest portion of the loan book is represented by borrowers from the far-eastern region. The corporate governance assessment is comparable to that of other regional banks. The Bank’s strategy is focused on the maintenance of the current balance sheet structure, where assets are distributed among the portfolio of bonds, the loan portfolio (mostly corporate), and high-liquid assets (interbank loans and NOSTRO accounts). The funding sources include corporate and retail funds, repurchase transactions, however, the current changes in the operating environments may affect the Bank’s strategy.
The capital adequacy assessment has been upgraded to strong since regulatory ratios have grown due to capitalization of profits. Regulatory ratios are met by the Bank with a sound margin: N1.2 was 15.49% as of December 1, 2023. ACRA’s stress test shows that the Bank is able to withstand a significant increase in the cost of risk. The average capital generation ratio for 2018–2022 is over 100 bps because the Bank earns sustainable profits, which allows it to generate capital regardless dividend payments.
The operating efficiency score takes into account the high CTI and the NIM that is lower than the average for peers. The last fact is associated with, on the one side, the asset structure represented by corporate loans and bonds and, on the other side, a high share of retail deposits in the liabilities.
Satisfactory risk profile assessment. The Agency notes that the share of non-performing and potentially non-performing loans has declined, while the concentration on the top ten groups of borrowers not associated with the Bank has grown to some extent amid the unchanged satisfactory score for risk management. The risk management system matches the specifics and the scale of the Bank’s business; all significant risks are periodically stress tested. The quality of the Bank’s investments in securities and interbank loans is acceptable.
The funding and liquidity position is satisfactory. The Agency notes that the short-term liquidity shortage indicator (STLSI) and the long-term liquidity shortage indicator (LTLSI) have improved.
The funding factor is assessed taking into account a heightened concentration on the funds of the largest lender and top ten lenders (groups of lenders). The diversification of funding sources has improved since the last rating action date.
KEY ASSUMPTIONS
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No increase in the loan portfolio concentration on the top ten groups of borrowers.
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The Bank’s business model remaining unchanged in the next 12–18 months.
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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No change in the liquidity position and the risk profile score remaining the same or better;
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Significantly lower volume of non-performing and potentially non-performing assets;
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Lower concentration on the largest funding source.
A negative rating action may be prompted by:
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Significant decline in capital adequacy metrics;
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Significant growth of non-performing and potentially non-performing loans due to a rapid expansion of the loan portfolio;
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Growing concentration on the top ten groups of borrowers;
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Growing volume of investment property on the Bank’s balance sheet;
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Higher level of market risk.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb.
Adjustments: no.
Support: no.
ISSUE RATINGS
There are no outstanding issues.
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 PJSCB "Primorye" was published by ACRA for the first time on March 20, 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 PJSCB "Primorye", information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of PJSCB "Primorye" and the financial statements of PJSCB "Primorye" drawn up in compliance with the Bank of Russia’s Ordinance No. 6406-U dated April 10, 2023. The credit rating is solicited, and PJSCB "Primorye" 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 PJSCB "Primorye". No conflicts of interest were discovered in the course of credit rating assignment.
