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ACRA assigns ВBB+(RU) to PJSC SCB "Metallinvestbank", outlook Stable

The credit rating assigned to PJSC SCB "Metallinvestbank" (the Bank) is based on a sustainable business profile and a strong capital adequacy. Negative impact on the Bank's standalone creditworthiness assessment (SCA) is exerted by a higher than industry average growth of loan portfolio and a concentration of the Bank's resource base on the funds of the largest customer group and a high volatility of the volume of funds raised from corporate customers. The credit rating takes into account the likelihood of support from OMK (United Metallurgical Company) (the Supporting Organization).

Metallinvestbank is a part of the OMK group, a major metallurgical holding in Russia. 100% of the Bank's shares belong to OMK-Service JSC, whose beneficiaries are Anatoly Sedykh (70%), Evgeny Shevelev (18%), and Valery Anisimov (12%).

Key rating assessment factors

'Satisfactory' business profile assessment (bbb-) is determined by a limited position currently occupied by the Bank in the Russian banking market (81st place in terms of capital) and a sufficiently recognizable brand. The Bank's head office is located in Moscow, and its five branches are in Belgorod, Vyksa, Nizhny Novgorod, Perm, and Novosibirsk. The Bank is focused on lending to corporate and retail customers, factoring, issuance of bank guarantees, and transactions in securities, foreign currency and derivative financial instruments.

The Bank's business is highly diversified: the Herfindahl-Hirschman Index is 0.18. At the same time, ACRA notes that the Bank's corporate portfolio is concentrated on lending to trading enterprises, mainly through factoring transactions.

The ownership structure is transparent. The system of corporate management corresponds to the business scale and scope of the Bank. Its development strategy provides for a moderate organic growth and it is assessed by the Agency as adequate.

ACRA notes that the Bank's loss absorption capacity is high under both regulatory standards (as of November 01, 2017, the N1.2 ratio was 9.4%) and Basel standards (Tier 1 CAR was about 12% at the end of September 2017). According to the ACRA stress test, the Bank can withstand a significant increase in the cost of risk (by more than 500 bps) without violating regulatory standards. The ability to generate generating from retained earnings is assessed as moderate: the averaged capital generation ratio (under IFRS) amounted to 54 bps for the last five years.

Net interest margin (NIM) is comparable to that of peers (4.6% for the last three years), and CTI (cost to income) is relatively high (about 55% for the last three years).

'Satisfactory' risk profile is characterized by a satisfactory assessment of the risk management system and the quality of the loan portfolio.

According to the Bank's IFRS financial statements, the share of non-performing and potentially non-performing loans amounted to 8.7% of the total loan portfolio, which is assessed by ACRA as moderate. The share of NPL90+ equaled to 5.5% of the total loan portfolio as of October 1, 2017. The concentration of the loan portfolio on the top 10 groups of related borrowers is also assessed as moderate (22.2% of the total loan portfolio).

The Bank's strategy until 2020 provides for a sustainable increase in corporate and retail lending. At the same time, in 2017, the increase in the loan portfolio (both for corporate and retail borrowers) exceeded the market average and planned volumes. At the same time, the growth in the loan portfolio is partly due to the increase in loans that the Bank provides to existing customers with good credit quality, which gives ACRA grounds to limit the negative adjustment.

The portfolio shows a low concentration on high-risk industries (9.5% of Tier 1 capital under IFRS) and related parties (14.7%). The Bank's securities portfolio (government bonds and corporate Eurobonds) is of high quality. The market risk is assessed as acceptable.

'Satisfactory' assessment of funding and liquidity. The Bank has a short-term liquidity surplus in both the base case and stress scenarios of ACRA and an adequate long-term liquidity profile.

This factor is restrained by a high concentration of funding on the largest group of creditors who are persons associated with the Supporting Organization. The diversification of funding sources is assessed as moderate.

The rating takes into account the likelihood of support from the Supporting Organization, whose parent company is OMK-Service JSC; therefore, ACRA added one notch up to the Bank's SCA.

The creditworthiness of the Supporting Organization is assessed by ACRA as strong, and, in case of need, the Supporting Organization is able to inject capital and provide liquidity to the Bank. The affinity between the Bank and the Supporting Organization is assessed as moderate.

The likelihood of support to the Bank is conditioned by its deep operational integration into the OMK group, and its strategic importance for the group. In 2014, OMK-Service JSC granted the Bank with a subordinated loan of RUB 1.8 billion until 2024, which also confirms the shareholders' propensity to support the Bank.

Key assumptions

  • The current shareholding profile will remain unchanged;
  • The Bank will stick to its current business model in the next 12–18 months;
  • The cost of credit risk will not exceed 2% in the next 12–18 months;
  • The share of NPLs will not exceed 8–9% in the next 12–18 months;
  • The loan portfolio growth rate will not exceed 10–15% in 2018.

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:

  • Higher quality and moderate organic growth of the loan portfolio;
  • Lower concentration of the resource base on the largest group of customers.

A negative rating action may be prompted by:

  • Lower credit quality of assets caused by a fast growth of loan portfolio;
  • Deteriorating liquidity;
  • Lower CAR under IFRS and/or RAS;
  • Higher market risk.

Rating components

SCA: bbb.

Adjustment: Group: +1 notch to the SCA.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups under the National Scale for the Russian Federation, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to PJSC SCB "Metallinvestbank" for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action (January 31, 2018).

The assigned credit rating is based on the data provided by PJSC SCB "Metallinvestbank", information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using consolidated IFRS financial statements of PJSC SCB "Metallinvestbank" and financial statements of PJSC SCB "Metallinvestbank" composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and PJSC SCB "Metallinvestbank" participated in its assignment.

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

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

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