The credit rating of Limited Liability Company Microfinance company T-Finans (hereinafter, T-Finans, or the Company) has been upgraded due to a similar rating action performed by ACRA with regard to the credit rating of Tinkoff Bank (hereinafter, the Supporting Entity, SE, or the Bank). The Company’s standalone creditworthiness assessment (SCA) is adequate (bbb) due to strong assessments of the business profile and capital adequacy, a satisfactory risk profile, and an adequate funding and liquidity position.
The change in the outlook on the Company’s credit rating to Positive is due to the establishment of the same outlook on the SE’s credit rating, as well as the fact that, in accordance with the approach used by the Agency, a change in the Bank’s credit rating leads to a change in the Company’s credit rating.
T-Finans is a large microfinance organization that is part of TCS Group Holding PLC (hereinafter, the Group) that also includes the Supporting Entity. It was established in 2016 with a focus on POS microloans in offline and online stores.
key assessment factors
Very high likelihood of support from the Supporting Entity. In ACRA’s opinion, if necessary the SE can provide the Company with sufficient short-term and long-term funding and capital injections in view of the following:
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The SE’s creditworthiness is high compared to the standalone creditworthiness of the Company, and the scope of the Company’s business is not a factor that could limit the effectiveness of potential support;
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The Group exercises complete shareholder and significant operational control over the Company, as it determines the corporate risk management procedures and standards applied by the Company, taking into account Russian law;
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The Company is part of the Group’s ecosystem, and therefore a possible default of the Company may lead to significant reputational risks for the Group; at the same time, the Company operates under its own brand;
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The Company and the SE operate in the same jurisdiction, which eliminates potential barriers to providing support.
At the same time, the Agency takes into account the fact that the Company’s windup would not give rise to critical risks for the implementation of the Group’s strategy. In view of the above, ACRA determines the credit rating of the Company as two notches below the final rating of the Bank.
The strong business profile assessment is due to the high stability of the Company’s operations and corporate governance and the adequate degree of business diversification. T-Finans is part of the Group’s ecosystem, which gives the Company competitive advantages in the microfinance market in terms of both the potential market size (the Group’s customer base exceeds 35 mln customers) and access to infrastructure support from other companies of the Group, including the Bank. In particular, the Company benefits from the risk management practices and business processes established at the Bank, and it may scale up its business while maintaining a moderate risk appetite. The product line is only represented by POS microloans, a segment in which the Company is a leader: as of July 1, 2023, the volume of issued microloans amounted to RUB 20,055 mln. This product is subject to regulatory risks, however, in the Agency’s opinion, the Company has enough tools to reduce their impact on its development plans. ACRA highly assesses the experience and competencies of the Company’s employees, some of whom hold positions at the Bank.
The strong capital position reflects the high assessment of the capital adequacy ratio (CAR), which, according to the Agency’s calculations subject to adjustments, amounted to 24.3% as of July 1, 2023. ACRA notes stable profitability metrics of the Company in the absence of dividend distribution — the averaged capital generation ratio (ACGR) for the period from 2020 to 2022 amounted to 488 bps, which is assessed as adequate. Taking into account the continuing trend in the Company’s profitability (as of October 1, 2023, net profit amounted to RUB 2,518 mln vs. RUB 2,455 mln a year before), ACRA expects that ACGR exceeded 500 bps at the end of 2023. As of October 1, 2023, the Company’s regulatory capital amounted to RUB 11,382 mln, which is one of the highest indicators on the market, while the value of NMFC1 was 35.4%.
The satisfactory risk profile reflects a moderate amount of non-performing assets and the low concentration of the loan portfolio. According to ACRA’s calculations, overdue debt as of July 1, 2023 was 6.1%, while the averaged quarterly ratio of non-performing loans to the total portfolio (including assigned loans) was 11.5%. The Company does not issue loans exceeding RUB 500,000, which, throughout its existence, has a positive effect on the concentration of the portfolio on the ten largest groups of borrowers. T-Finans cooperates with the Group’s companies, so it can apply and improve the scoring models applied to monitor non-performing loans on its balance sheet and to further manage such loans, which is also positive for portfolio quality.
Adequate funding and liquidity indicators. As of July 1, 2023, the Company’s own funds were the main source of funding. The rest of the resource base is formed by funds provided by the Supporting Entity. As the Company’s business develops, the share of its sole lender, the affiliated Bank, decreases. At the end of H1 2023, this share amounted to 39.1% of liabilities. In its plans, the Company notes the gradual expansion of funding sources on account of both third-party banks and market borrowings. The Company maintains a comfortable level of liquid assets: for example, on July 1, 2023, the NMFC2 ratio amounted to 388.21%, on October 1, 2023 is was 206.99%, which, together with a stable collection rate for the portfolio, shows the Company’s readiness for stress scenarios. The Company also has access to additional sources of liquidity in the form of undrawn credit lines. The Company’s large repayments fall due to related parties, and they are clearly predictable and will not impair the assessment of the liquidity position.
KEY ASSUMPTIONS
- The Company’s strategy and business model remaining unchanged in the next 12 months.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Higher creditworthiness of the SE;
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Better assessment of the degree of support to the Company due to an increase in its importance to the SE.
A negative rating action may be prompted by:
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Significantly lower creditworthiness of the SE;
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Lower propensity of the SE to support the Company.
RATING COMPONENTS
SCA: bbb.
Adjustments: none.
Support: credit rating of the Supporting Entity minus two notches.
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 Assigning Credit Ratings to Microfinance Organizations on 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 Limited Liability Company Microfinance company T-Finans was published by ACRA for the first time on February 2, 2024. 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 Limited Liability Company Microfinance company T-Finans, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IAS financial statements of Limited Liability Company Microfinance company T-Finans. The credit rating is solicited and Limited Liability Company Microfinance company T-Finans 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 Limited Liability Company Microfinance company T-Finans. No conflicts of interest were discovered in the course of credit rating assignment.
