The credit rating of Evrofinance Mosnarbank (hereinafter, Evrofinance Mosnarbank, or the Bank) reflects the satisfactory assessment of the business profile, strong capital adequacy position, adequate funding and liquidity position, and the low risk profile assessment. The rating takes into account the level of support from the parent company (hereinafter, the parent company, Supporting Entity, SE, or the Group), which is assessed as medium and is reflected in the addition of three notches to the Bank’s standalone creditworthiness assessment (SCA).
Evrofinance Mosnarbank is a medium-sized credit institution headquartered in Moscow. The Bank is focused on working primarily with corporate clients. An integral part of the Bank’s business is the implementation of foreign trade operations, including in Venezuela.
key assessment factors
The business profile assessment has been upgraded to bbb- to reflect a successful, in ACRA’s opinion, development of Evrofinance Mosnarbank in line with its strategy, as well as a stronger role the Bank plays within the Group (in particular, the Bank in taking an active part in the development of the parent entity’s international projects, including settlement operations). As part of the strategy, the Bank is intended to expand its loan portfolio further and earn more fee income on the backdrop of growing cash and settlement and other operations. Moreover, Evrofinance Mosnarbank is one of the four credit institutions included by the Bank of Russia into the register of data systems operators authorized to issue digital financial assets (DFA). ACRA expects that the Bank’s role within the Group will become stronger and its positions in the banking market will improve to some extent.
According to ACRA’s estimates, in H1 2024, Evrofinance Mosnarbank was one of the 90 largest Russian banks by equity and did not play a major role in the domestic banking services market in the Russian Federation, which is reflected in the corresponding adjustment made following a secondary assessment of the business profile. Amid an overall satisfactory level of diversification, the main volume of operating income is formed by interest income from corporate loans and the securities portfolio (about 70% in 2023).
The Agency views the quality of the Bank’s corporate governance as satisfactory and appropriate in terms of the Bank’s goals. The ownership structure is generally assessed as transparent.
Strong capital adequacy assessment. The Bank consistently maintains high regulatory capital adequacy ratios. As of June 1, 2024, the N1.2 ratio was 23.902%. A significant buffer for the absorption of unexpected losses allows the Bank to withstand an increase in the cost of risk in excess of 500 bps and to comply with capital adequacy standards. At the same time, the Bank’s ability to generate capital is improving gradually: in 2023 and H1 2024, the profitability grew. Operational efficiency is assessed as medium, while the profitability of the Bank’s operations is similar to that of peer banks.
ACRA assesses the credit quality of the Bank’s assets as satisfactory. As of the end of H1 2024, the loan portfolio exceeded 20% of the Bank’s assets, which explains the portfolio’s impact on the final risk profile assessment. In ACRA’s opinion, although the loan portfolio mainly includes receivables of a rather high credit quality, its relatively high concentration is a negative factor. When analyzing the loan portfolio, ACRA noted the rather high share of unsecured loans and guaranteed loans. The largest share of assets is formed by receivables from financial institutions and a portfolio of securities whose credit quality, in ACRA’s view, is fairly high. The Agency notes Evrofinance Mosnarbank’s considerable exposure to market risk. The presence on the balance sheet of a significant amount of investments in investment property was also taken into account when assessing the risk profile (the Bank plans to sell its investment properties). In view of the above factors, ACRA assesses the risk profile as low. At the same time, the quality of the risk management system corresponds to the scale and areas of the Bank’s development and, according to the Agency, is satisfactory.
The adequate funding and liquidity position stems from the high volume of liquid assets on the Bank’s balance sheet. Evrofinance Mosnarbank is able to withstand an outflow of client funds in both ACRA’s base case and stress scenarios. The long-term liquidity shortage indicator as of Q1 2024 was assessed as strong, which indicates a balance between the Bank’s assets and liabilities. As of June 1, 2024, the ratios N2, N3, and N4 amounted to 52.841%, 133.134%, and 17.196%, respectively. ACRA notes that the share of liabilities formed by the ten largest creditors (depositors) is still high. At the same time, the Agency observes that the amount of liabilities to financial institutions grew in 2023 in absolute terms and as a percentage of the total liabilities.
The rating takes into account the medium level of support from the parent company. In ACRA’s opinion, the high creditworthiness of the SE and absence of any barriers to providing support mean that the Bank can count on receiving support when necessary.
The Agency notes that the relatively small scale of business and the moderate (to date) degree of the Bank’s integration into the Group’s business processes reduce the strategic risk that a hypothetical default of the Bank may pose for the development of the SE. At the same time, the Group delegates to the Bank a number of functions (including participation in the development of international projects, development and implementation of DFA-based assets), which may allow it to increase its strategic importance. The SE exercises a relatively high level of shareholder and operational control over the Bank’s activities. At the same time, the Bank and the SE operate under different brands.
In the past, the parent company has not needed to provide capital or liquidity support to Evrofinance Mosnarbank, however, the SE has announced that it is ready to offer such support. In view of the above, three notches have been added to the Bank’s SCA.
KEY ASSUMPTIONS
-
Maintaining the current business model over the next 12–18 months.
-
Maintaining capitalization and profitability metrics at their 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:
-
Significant decline in the loan portfolio coupled with its sustainably high quality;
-
Lower volume of accepted market risk;
-
Lower volume of investment property on the balance sheet;
-
Significant increase in the importance of the Bank for the development of the parent company.
A negative rating action may be prompted by:
-
Lower diversification of the operating income;
-
N1.2 capital adequacy ratio falling below 12%;
-
Further growth of the share of liabilities to financial institutions in the total volume of the resource base;
-
Lower importance of the Bank in terms of development of the parent company.
RATING COMPONENTS
SCA: bbb-.
Individual adjustments: none.
Support: SCA plus three notches.
ISSUE RATINGS
No outstanding issues have been rated.
REGULATORY DISCLOSURE
The credit rating has been assigned to Evrofinance Mosnarbank 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 Evrofinance Mosnarbank was published by ACRA for the first time on July 18, 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 Evrofinance Mosnarbank, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the financial statements of Evrofinance Mosnarbank drawn up in compliance with Bank of Russia Ordinance No. 6406-U dated April 10, 2023. The credit rating is solicited and Evrofinance Mosnarbank 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 Evrofinance Mosnarbank. No conflicts of interest were discovered in the course of credit rating assignment.
