ACRA affirms BB-(RU) to PJSC «AKIBANK», changes outlook to Positive

ACRA has affirmed the credit rating of Joint Stock Commercial Mortgage Bank AKIBANK (Public Joint Stock Company) (hereinafter, the Bank) due to the Bank maintaining a moderately low business profile assessment, strong capital adequacy, and an adequate liquidity and funding position. The Bank’s low risk profile assessment continues to have a negative impact on the final credit rating.

The change in outlook to Positive reflects ACRA’s expectation of a possible increase in the risk profile assessment, specifically in terms of improving loan portfolio quality.

AKIBANK is a regional credit institution focused on financial services mostly in the Republic of Tatarstan. The Bank’s main activity is corporate lending. The Bank is also active in the bank guarantee business. As of April 1, 2019, the Bank ranked 131st in assets and 119th in loan portfolios among Russian banks, as well as 5th in assets among banks in Tatarstan. The Bank is headquartered in Naberezhnye Chelny.

Key rating assessment factors

The Bank maintains a moderately low business profile assessment (bb-). The main factors determining the business profile assessment are the Bank's weak position in the Russian financial services market, low diversification of operating income, and limited transparency in ownership structure. The Bank generates its revenues mainly from interest income on loans issued to corporations (55% of operating income). The Bank’s ownership structure is not entirely transparent; a significant share of shareholder capital belongs to offshore companies. ACRA notes that the Bank maintains its main areas of development, which are focused primarily on work with corporations.

The Bank’s strong capital adequacy assessment is largely based on high capital adequacy ratios. As of April 1, 2019, the Bank’s N1.2 ratio stood at around 19.11%. ACRA’s stress test indicates that the Bank’s large loss absorption buffer allows it to withstand an increase in the cost of credit risk by more than 500 bps without the need for additional capital injections. At the same time, the Bank’s ability to generate capital remains low. In 2014–2018, the averaged capital generation ratio (ACGR) amounted to 16 bps (this ratio exceeded 100 bps in 2018), which is due to weak operational efficiency. The cost to income (CTI) indicator reached 70% for 2016-2018. The Bank shows a high operating margin, as its net interest margin (NIM) averaged 6.6% in 2016-2018.

The Bank maintains a low risk profile assessment, but it has improved the quality of its loan portfolio. As of January 1, 2019, the total volume of problem or potentially problem loans amounted to 15.9% (less than 10% as of April 1, 2019), while NPL90+ stood at 7.1%. The coverage ratio of these loans exceeded 60% (higher than 70% as of April 1, 2019). ACRA noted a gradual reduction in the share of loans granted to the 10 largest groups of borrowers (50.9% as of December 31, 2018; around 40% as of April 1, 2019).

The Bank’s non-core assets, which amount to more than 10% of its common equity, apply addition pressure to the risk profile assessment. ACRA assesses the quality of the Bank’s other assets as high. The quality of the Bank’s contingent liabilities portfolio remains acceptable, however there is a large concentration on the largest obligors.

ACRA assesses the Bank’s liquidity and funding position as adequate. The Bank’s position is strong, which is partially confirmed by its short-term liquidity shortage indicator (STLSI). ACRA’s base case shows a liquidity surplus of RUB 6 bln; the stress test scenario indicates 11.4%. The Bank’s liquidity surplus is determined by a large volume of funds on the accounts of other credit organizations (mostly in the Bank of Russia). ACRA notes no imbalances over longer periods (the long-term liquidity shortage indicator, LTLSI, exceeds 100%). 

ACRA considers the concentration on funding sources to be increased, among which individuals account for about 70% of all liabilities. The concentration of the resource base on the largest groups of creditors (depositors) is assessed as acceptable.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • Stable bank management system;
  • Cost of credit risk within 4%;
  • Maintaining profitable operations;
  • N1.2 no lower than 12% within the 12 month horizon. 

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Further reduction of problem loans;
  • Continued reduction of loan portfolio concentration;
  • Decreased volume of non-core assets.

A negative rating action may be prompted by:

  • Further reduction in transparency of ownership structure;
  • Decrease in capital adequacy;
  • Deterioration in liquidity position;
  • Increased share of the 10 largest groups of borrowers in the loan portfolio;
  • Growth in the resource base concentration on the funds of the largest groups of creditors. 

Rating components

SCA: bb-.

Adjustments: 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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of PJSC «AKIBANK» was published by ACRA for the first time on May 31, 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 «AKIBANK», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of PJSC «AKIBANK» and the financial statements of PJSC «AKIBANK» drawn up in compliance with Bank of Russia Ordinance № 4927-U dated October 8, 2018. The credit rating is solicited, and PJSC «AKIBANK» participated in its assignment.

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

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

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