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ACRA affirms BBB-(RU) to PJSC METKOMBANK, outlook Stable

The credit rating of PJSC METKOMBANK (hereinafter, the Bank) is based on its satisfactory business profile coupled with strong capital adequacy, adequate liquidity and funding, and satisfactory risk profile.

The Bank is a medium-sized credit institution operating primarily in Moscow and the Ural Federal District. The Bank’s active operations mainly include investments in securities and loans to non-financial companies. A group of individuals exercises actual control over the Bank with each of them holding less than 10% of shares. As of April 1, 2020, the Bank ranked 55th in terms of equity and 80th in terms of assets among Russian credit institutions. Since February 2016, the Bank has been bailing out JSC “Econombank” (hereinafter, Econombank).

Key rating assessment factors

Satisfactory business profile assessment reflects the Bank’s narrow client base, as well as medium strategy and management assessments. The Agency notes deterioration in the Bank’s operating income diversification: the Herfindahl-Hirschman index amounted to 0.37 in 2019 vs. 0.28 a year earlier. At the same time, ACRA notes a growth in the Bank’s guarantee business, as well as an increase in the share of captive business and its possible modest growth in the future.

Strong loss absorption buffer. The Bank maintains sufficiently high capital adequacy ratios (as of March 1, 2020, N1.2 = 23.98%). The Bank’s capital generation capacity is assessed as low: the averaged capital generation ratio (ACGR) is estimated at 14 bps for 2015–2019. The assessment was negatively impacted by a fall in net profit in 2019 compared to the previous year. The drop in net profit is due to the specifics of reflecting operations aimed at raising funds from the financial market through operations with financial assets and liabilities measured at fair value through profit or loss. However, ACRA notes positive dynamics of total income, which amounted to RUB 446 mln in 2019 vs. the loss of RUB 1.4 bln in 2018. Over the last years, the Bank paid significant dividends to shareholders, which also negatively affected ACGR.

Satisfactory risk profile assessment. Investments in securities make up most of the assets (nearly 40%), of which more than RUB 7.5 bln are investments in equity instruments (around 40% of own funds). The bonds are represented by government bonds of the Russian Federation, as well as bonds of Russian corporate issuers and banks. The quality of debt securities is generally assessed by ACRA as high.

The loan portfolio of the banking group (including Econombank) is characterized by relatively high concentration: as of December 31, 2019, the top ten groups of borrowers accounted for more than 60% of the loan portfolio. The share of problem loans (Stage 3 loans under IFRS) fell year-on-year and stood at around 13.1% as of December 31, 2019, compared to 19.4% as of December 31, 2018. At the same time, the Bank has a sufficient level of coverage of problem loans with reserves: 148% as of December 31, 2019, vs. 107% a year earlier.

Adequate liquidity and funding. As of the end of 2019, the short-term liquidity shortage indicator (STLSI) was positive in both the base case and the stress scenarios of ACRA. The long-term liquidity position is also assessed as strong: the long-term liquidity shortage indicator (LTLSI) stood at 87%.

The Bank’s resource base is characterized by increased concentration on the funds of the largest group of lenders (over 20% of the Bank’s liabilities as of December 31, 2019); the share of the top ten depositors is around 40%. The funding structure is generally assessed as acceptable.

Key assumptions

  • Maintaining the current business model;
  • N1.2 exceeding 15% in the next 12–18 months;
  • NIM within 4–4.5%;
  • Maintaining the current funding structure.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Lower concentration of the loan portfolio on borrowers;
  • Stronger competitive positions in the key segments;
  • Lower concentration on the largest groups of lenders.

A negative rating action may be prompted by:

  • Significant decline in capital adequacy ratios;
  • Sharp decrease in loan portfolio quality;
  • Considerable growth in lending to companies affiliated with the shareholders or their business partners;
  • Deterioration in liquidity position.

Rating components

SCA: bbb-.

Adjustments: none.

Support: none.

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 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 PJSC METKOMBANK was first published by ACRA on June 9, 2018. 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 the data provided by PJSC METKOMBANK, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS financial statements of PJSC METKOMBANK and financial statements of PJSC METKOMBANK composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and PJSC METKOMBANK participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by PJSC METKOMBANK in its financial statements have been discovered.

ACRA provided no additional services to PJSC METKOMBANK. No conflicts of interest were discovered in the course of credit rating assignment.

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