The credit rating of “FORA-BANK” Joint-Stock Commercial Bank (hereinafter, FORA-Bank, or the Bank) has been upgraded by one notch to BB-(RU), outlook Stable, due to the Bank’s proven ability to maintain its averaged capital generation ratio (ACGR), calculated for the past five years, at above 50 bps, as well as ACRA’s expectations regarding this metric being maintained above that value over the next 12–18 months. The credit rating is now determined taking into account adequate capitalization and profitability, the limited business profile assessment, the critical risk profile, as well as the adequate funding and liquidity position.
FORA-Bank is a credit institution that operates within the perimeter of a large diversified group of companies. The Bank specializes in servicing small and medium-sized enterprises, with a focus on the construction sector and real estate operations, along with trade and production. The Bank also provides settlement and cash services to legal entities, and a wide range of services for individual clients. In the Agency’s opinion, in developing its business, among other things the Bank quite actively relies on the ties of its owners and the main beneficiary, who is also the main owner of the abovementioned group.
KEY ASSESSMENT FACTORS
The limited business profile assessment (bb) is due to the Bank’s low market positions in the Russian banking sector. In its assessment, the Agency also proceeds from the opinion that one of the important factors of FORA-Bank’s development is its use of the influence and extensive business relationships of its owners, which among other things help to attract and retain clients.
FORA-Bank’s strategy continues to be built around moderate growth of the loan portfolio and other areas of business; the Bank strives to become a more noticeable player in the financial services market. In ACRA’s opinion, in the future, the Bank will continue to rely on relatively stable positions and accumulated expertise in the segments of construction and real estate transactions, including support of transactions of its clients with the provision of the necessary related services and banking products. In addition, income from currency transactions, including those performed for its clients (including cross-border payments and transfers to CIS countries) will remain among the priorities that ensure additional diversification of profits.
ACRA notes that the Bank is working on updating its strategy, the approval of which for the next forecast period is expected closer to the end of 2024. The Agency does not have any information on FORA-Bank’s intent to radically change its business.
The capitalization and profitability assessment has been improved to adequate. ACRA assumes that the Bank will be able to maintain its ACGR consistently above 50 bps over the next 12–18 months, which is evidenced by the credit institution’s past performance. Over the last 18 months, FORA-Bank’s income has been at a relatively comfortable level thanks to revenues from currency transactions, higher interest margins against the backdrop of tightening monetary policy, and relatively low credit losses compared to other periods.
As expected, capital adequacy expressed at the N1.2 regulatory ratio has declined over the past 18 months to approximately 10% as of May 1, 2024, since the Bank returned to growth, and its financial results, although quite comfortable, were below the abnormally strong 2022 earnings.
According to ACRA’s base case forecast, N1.2 will continue to be above 9% over the next 12–18 months, which is an essential assumption in maintaining the adequate capitalization and profitability assessment as per the Agency’s methodology. ACRA’s forecast takes into account moderate growth rates of the Bank’s loan and guarantee portfolios, and expected dividend payments.
Critical risk profile assessment. The assessments of concentration on the largest borrowers and the share of potential non-performing loans in total lending have not changed significantly compared to last year’s metrics. As before, they determine the satisfactory starting assessment of the Bank’s risk profile. Additional risks, which lead to the critical assessment, are related to the Bank’s focus on the construction and real estate transactions sector, which ACRA views as sensitive to changes in the economy, as well as the presence, in ACRA’s opinion, a significant volume of exposures in the loan portfolio that have signs of direct or indirect connection to the companies of the owners. At the same time, the Bank complies with all the regulatory requirements established by the Bank of Russia: the ratio for the maximum amount of risk per borrower or group of related borrowers (N6) and the ratio for an entity affiliated with the bank or a group of entities related to the bank (N25).
Adequate funding and liquidity assessment. The main source of funding continues to be relatively granulated funds of individuals and sole proprietors, which adds to the stability of the Bank’s resource base. According to ACRA’s assessments, liquidity indicators continue to be at relatively comfortable levels. As of May 1, 2024, the N2, N3, and N4 regulatory ratios were 81.4%, 96%, and 83.5%, respectively.
KEY ASSUMPTIONS
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Maintaining the current business model and financial metrics over the next 12 to 18 months, despite the Bank’s plans to update its strategy by the end of 2024;
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No signs of deterioration of capitalization and profitability over the next 12 to 18 months;
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No growth of regulatory risks.
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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Sustainable asset quality improvement and declining concentration on the largest borrowers;
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Lower concentration on the real estate and construction segment and/or lower volume of loans that are directly or indirectly related to beneficiaries;
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Further strengthening of the Bank’s ability to absorb unforeseen losses.
A negative rating action may be prompted by:
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Deterioration of capitalization and profitability due to unforeseen credit losses and/or aggressive growth;
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Weaker business due to the negative impact of the operating environment;
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Volatility of the client base, in particular, the funding base;
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Growing influence of regulatory risks, including increased regulatory attention to the Bank’s cross-border operations or changes in the regulator’s approaches to the interpretation of ties between entities.
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 to “FORA-BANK” Joint-Stock Commercial Bank 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 “FORA-BANK” Joint-Stock Commercial Bank was published by ACRA for the first time on July 9, 2021. 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 “FORA-BANK” Joint-Stock Commercial Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of “FORA-BANK” Joint-Stock Commercial Bank and the financial statements of “FORA-BANK” Joint-Stock Commercial Bank drawn up in compliance with Bank of Russia Ordinance No. 6406-U dated April 10, 2023. The credit rating is solicited and “FORA-BANK” Joint-Stock Commercial 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 “FORA-BANK” Joint-Stock Commercial Bank. No conflicts of interest were discovered in the course of credit rating assignment.
