The credit rating of “CUB” JSC (hereinafter, CUB, Credit Ural Bank, or the Bank) is based on the satisfactory assessments of business profile and the position in funding and liquidity, and the adequate capital adequacy and risk profile assessments. ACRA also takes into account the possibility of the Bank receiving extraordinary support from its shareholder (hereinafter, the Supporting Entity, or the SE), which is expressed in the addition of four notches to the Bank’s standalone creditworthiness assessment (SCA).
The credit rating outlook has been changed from Positive to Developing to reflect ACRA’s opinion on a range of factors that may drive the credit rating in opposite directions over the next 12–18 months, depending on the Bank’s decisions on its further development.
Credit Ural Bank is a universal regional bank that holds medium positions in the Russian banking sector. The Bank operates primarily in Magnitogorsk, a city in the Chelyabinsk Region. Its activities are focused on consumer lending (mainly mortgages and consumer loans), financing and providing guarantees to corporate borrowers, and securities transactions, which are performed mainly by raising funds from clients (usually retail clients). In addition, CUB is actively developing its transactions business.
KEY ASSESSMENT FACTORS
High likelihood of Credit Ural Bank receiving extraordinary support from the Supporting Entity. The SE’s interest in providing support to CUB is determined by the presence of reputational (including due to the similarity of brands and logos) and economic risks for the SE in the event of the Bank’s default. The Supporting Entity exercises complete shareholder control over Credit Ural Bank, actively participates in its management, and coordinates its development strategy. The Bank’s activities are complementary to the goals and objectives of the Supporting Entity, although, if necessary, the functions of Credit Ural Bank can be carried out by the SE itself. The Supporting Entity leaves a significant part of profits for the further development of CUB’s business and, if necessary, is ready to provide it with support in the form of capital and liquidity, as well as by providing guarantees.
ACRA assesses the Supporting Entity’s creditworthiness as strong, and the level of dependence of the Bank and the SE on homogenous risk factors as medium.
Taking into account the above, ACRA’s opinion on the level of support from the Supporting Entity is expressed in the addition of four notches to Credit Ural Bank’s SCA.
The Bank’s business profile assessment has improved from moderate to satisfactory (bbb-) due to the consistently high diversification of the Bank’s business lines and operational income (the Herfindahl-Hirschman index was 0.14 at the end of 2023), which shows the sustainability of its business model. The Bank’s strategy involves developing existing areas of business and views servicing key groups of clients as a priority. At the same time, its positions in the Russian banking market are still rather low and the concentration on the key region of presence is significant. The quality of corporate governance is assessed as adequate.
The capital adequacy assessment has been lowered from strong to adequate as capital adequacy ratios have declined to stably acceptable levels (including the Tier 1 capital adequacy ratio at 10.8% as of November 1, 2024 and the 12-months average value at 11.1%), which still allows the Bank to withstand an increase in the cost of risk by more than 500 bps. At the same time, the Bank’s ability to generate capital, which is influenced by regular dividend payments (except 2022, when net profit for 2021 was not paid as dividends in order to further develop the business), is assessed as satisfactory. CTI (cost to income) and NIM (net interest margin) calculated by ACRA for the past three years are at the same level as those of peer banks—73% and 5.1%, respectively.
The risk profile assessment has improved from satisfactory to adequate to reflect a significant decline in the level of market risk to 0.76x common equity as of June 30, 2024 and further to 0.5x common equity as of November 1, 2024. At the same time, the quality of the loan portfolio, which is around half of the Bank’s assets, is assessed as adequate, taking into account an acceptable concentration (22.4%) of the portfolio on the ten largest groups of borrowers, as well as a low level (5.7%) of non-performing and potentially non-performing loans. The share of unsecured loans is moderate, and the portfolio’s concentration on high-risk assets is low (0.3x common equity). The credit quality of the portfolio of contingent liabilities is assessed as high. At the same time, the volume of loans issued to related parties has grown to 1.6x common equity, which constrains the credit rating.
The funding and liquidity position has declined from adequate to satisfactory since the concentration of liabilities on the largest groups of lenders has grown and the share of retail funds in the resource base has remained heightened at 65% as of June 30, 2024. At the same time, as part of its assessment of the liquidity sub-factor, ACRA notes that the Bank is able to withstand an outflow of client funds under both the base case and stress scenarios. The short-term liquidity shortage indicator and long-term liquidity shortage indicator are achieved with a margin. In addition, as of June 30, 2024, the securities portfolio was used in repurchase transactions, and therefore it can serve as an additional source of liquidity.
KEY ASSUMPTIONS
-
Maintaining the current business model over the next 12 to 18 months.
-
Maintaining a comfortable capital adequacy ratio (N1.2) over the next 12 to 18 months.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Developing outlook assumes a variety of trends: the rating may stay unchanged, be upgraded or downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
-
Much better capital adequacy ratios and/or ability to generate capital;
-
Sustainable decline in the volume of loans to related parties and the share of non-performing loans, and maintaining the portfolio’s moderate concentration on the largest groups of borrowers;
-
Significant decline in the concentration on the largest groups of lenders and maintaining the strong liquidity position.
A negative rating action may be prompted by:
-
Lower capital adequacy ratios and/or ability to generate capital, as well as worse operating efficiency of the Bank, including CTI above 75%;
-
Increase in the share of non-performing loans and/or higher concentration on the largest groups of borrowers, along with the market risk exceeding the threshold of 75% of common equity and/or further increase in the volume of loans issued to related parties;
-
Worse liquidity position.
rating components
SCA: bbb.
Adjustments: none.
Support: SCA + 4 notches.
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, Methodology for Assigning Credit Ratings with External Support, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of “CUB” JSC was published by ACRA for the first time on December 28, 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 “CUB” JSC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of “CUB” JSC and the financial statements of “CUB” JSC drawn up in compliance with the Bank of Russia’s requirements. The credit rating is solicited and “CUB” JSC 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 “CUB” JSC. No conflicts of interest were discovered in the course of credit rating assignment.
