The credit rating of SME Bank JSC (hereinafter, SME Bank, or the Bank) and the credit ratings of its bond issues, including senior unsecured bond issues (RU000A108RM6, RU000A109KV0) and subordinated bond issue (RU000A102HA5), have been upgraded due to the improvement of the capital adequacy assessment to strong on the backdrop of growing operational efficiency over the past three years.
Other factors of the Bank’s standalone creditworthiness assessment (SCA) have remained unchanged: moderate business profile (bb+), critical risk profile, and adequate funding and liquidity position. The Agency also takes into account the medium degree of support from the Bank’s parent company (hereinafter, the Group, Supporting Entity, or the SE; ACRA rating AAA(RU)), which is reflected in the addition of four notches to the Bank’s SCA.
key assessment factors
The business profile assessment has been maintained at a moderate level (bb+), which is related to the Bank’s medium capital position among Russian banks (57th place as of April 1, 2025), as well as the continued low product diversification of the Bank’s business due to its special role in supporting small and medium-sized enterprises (the Herfindahl-Hirschman index is 0.6).
The specifics and risks of the Bank’s current operations largely correspond to the mandate of a development institution. The main priority for the Bank, and the Group as a whole, is the development of the SME segment (mainly through the provision of loans under government programs), which, in ACRA’s opinion, is characterized by high credit risks, especially during periods of economic instability. Current government support and involvement in the Bank’s business partially reduce these risks. The operational sustainability is also facilitated by a stable funding base, which mainly includes public funds.
Since 2023, the Bank has been operating under a new strategy, the key changes of which are more balanced approaches to risk-taking and an emphasis on strengthening profitability. ACRA believes that it is too early to make conclusions on the sustainability of the changes and the outcomes of the updated business model.
The capital adequacy assessment has been improved to strong following an improvement in the cost-to-income ratio (CIR) averaged over the past three full years, due to the exclusion of 2021, a challenging year for the Bank (according to IFRS reports, the CIR was 33% in 2024 and 65% in 2023). The positive rating action is supported by the still relatively comfortable regulatory capital adequacy ratios (N1.2 at 16.6% as of April 1, 2025) and the positive capital generation since 2023 as part of the Bank’s new strategy.
In the next 12 months, ACRA expects restrained dynamics of the loan portfolio against the background of corresponding environmental conditions, which, in the absence of unforeseen losses, will help the Bank maintain capitalization at the current level.
The critical risk profile assessment reflects the still significant volume of non-performing loans (ACRA also takes into account that some non-performing loans were issued before changes to the Bank’s strategy and management structure, and currently they are fully covered by reserves). The Agency also notes quite a fast growth of the lending portfolio last year that outpaced industry-wise SME lending dynamics.
The credit risk assessment is complicated by the continued presence of a relatively significant volume of positions that involve long investment periods or borrowers at an early stage of business development, which, in turn, is explained by the strategy aimed at support of innovative SMEs.
The adequate funding and liquidity position is based on the significant and stable volume of funds from a related company, including subordinated debt, and from the Bank of Russia under a government program for developing SME sector. At the same time, business growth and the repayment of part of long-term liabilities in 2025 necessitate an increase in the Bank’s market funding.
Medium assessment of the degree of extraordinary support from the SE. In its assessment of support, on the one hand, ACRA notes strong legal, reputational and operational relationships between the Bank and the Group, coupled with the relatively significant size of the subsidiary for the SE. The Bank is still regarded as a significant component of the Group, and it is important for the Group in terms of providing loan and guarantee support to SMEs. ACRA also takes into account a capital injection carried out in 2022 and the growing role of the Bank as an institution taking part in the set of measures to stimulate economic growth. On the other hand, the Agency notes the absence of significant support for SME Bank in the form of capital from the Group during certain periods of increased pressure, as well as the lengthy process of approving the new strategy.
KEY ASSUMPTIONS
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Adhering to the approved business model of the Bank as part of the development strategy;
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The Group maintaining shareholder control.
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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Much stronger business profile;
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Significant decline in the amount of potential non-performing loans coupled with average market growth rates of the loan portfolio.
A negative rating action may be prompted by:
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Significant decrease in capital adequacy ratios due to unexpected credit losses or aggressive business growth;
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Inconsistent business model that results in the Bank generating losses and remaining highly dependent on external capital injections;
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Lower interest of the SE in providing financial support to the Bank.
rating components
SCA: bb+.
Support: SCA plus four notches.
issue ratings
Credit rating rationale. The issues listed below are senior unsecured debt of SME Bank. Due to the absence of structural and contractual subordination of the issues, ACRA assesses these bonds as equal in priority to other existing and future unsecured and unsubordinated obligations of the Bank. According to ACRA’s methodology, the credit rating of the issues is equivalent to the credit rating of the Bank — A-(RU).
SME Bank JSC, series 001P-02 (RU000A109KV0), maturity date: August 25, 2029, issue volume: RUB 7.5 bln — A-(RU).
SME Bank JSC, series 001P-01 (RU000A108RM6), maturity date: June 6, 2027, issue volume: RUB 5 bln — A-(RU).
Credit rating rationale. The bond listed below is a subordinated debt instrument of SME Bank with respect to senior unsecured creditors. According to ACRA’s methodology, the credit rating of this issue type is set at three notches below the final rating of SME Bank, which is BBB-(RU).
SME Bank JSC, series C01 (RU000A102HA5), maturity date: December 3, 2030, issue volume: RUB 720 mln — BBB-(RU).
REGULATORY DISCLOSURE
The credit ratings have been assigned to SME Bank JSC and the bond issues (ISIN RU000A102HA5, RU000A108RM6, RU000A109KV0) of SME Bank JSC 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 Methodology for Assigning Credit Ratings to Financial Instruments under the National Scale for the Russian Federation was also applied to assign the credit ratings to the bond issues.
The credit ratings of SME Bank JSC and the bond issues (ISIN RU000A102HA5, RU000A108RM6, RU000A109KV0) of SME Bank JSC were published by ACRA for the first time on December 29, 2017, March 25, 2021, June 21, 2024, and September 20, 2024, respectively. The credit rating of SME Bank JSC and its outlook and the credit ratings of its bond issues are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by SME Bank JSC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of SME Bank JSC and the financial statements of SME Bank JSC drawn up in compliance with the Bank of Russia’s requirements. The credit ratings are solicited and SME Bank JSC participated in their assignment.
In assigning the credit ratings, 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 SME Bank JSC. No conflicts of interest were discovered in the course of credit rating assignment.
