Training on Forecasting September 17–18

ACRA upgrades the credit rating of MARITIME BANK to B+(RU), outlook Stable

The upgrade to the credit rating of MARITIME BANK (hereinafter, the Bank) reflects the Bank’s increased shareholder support. The standalone creditworthiness assessment (SCA) is due to the Bank’s weak market position, satisfactory capital adequacy, weak risk profile, and adequate liquidity and funding position.

MARITIME BANK, located in Moscow, is a small bank in terms of assets specializing in corporate client services, in particular clients in the maritime and river transportation industries. As of January 1, 2019, the Bank ranked 181st in capital among Russian banks.

Key rating assessment factors

The Bank’s relatively low business profile assessment stems from the Bank’s weak franchise in the Russian banking market coupled with relatively poorly diversified operating income (Herfindahl-Hirschman Index at 0.4 as of January 1, 2019). ACRA notes that the Bank updated its strategy in 2019; in addition to work with corporations (with a focus on maritime and river transportation companies as well as related industries), the strategy assumes the development of transactional and digital lines of business. In ACRA’s opinion, the consistent and successful implementation of this strategy could allow the Bank to strengthen its position in the financial services market.

The Bank’s ownership structure is transparent. The Bank’s main beneficiary is Sergey Generalov (99.84%), who is also a member of its Board of Directors and the president of “Industrial Investors Group” (IIG).

ACRA assesses the Bank’s capital adequacy as satisfactory. As of January 1, 2019, the Bank maintains ample capital adequacy ratios (N1.1 and N1.2 at 10.7%, N1.0 at 12.6%), which ensures acceptable credit risk absorption capacity for the next 12-18 months. ACRA’s stress test shows that the Bank is capable of withstanding an increase in the cost of risk of 300-500 bps without breaching the N1.2 ratio. At the same time, capital adequacy has been supported by financial assistance from the Bank’s owner; this includes gratuitous financing (RUB 200 mln in 2016-2017), the conversion of subordinated loans (more than RUB 1.3 bln), and the redemption of non-core assets from the Bank's balance sheet (RUB 500 mln in 2017), and problem loans (RUB 400 mln in 2018).

In 2014-2018, the Bank’s ability to generate capital remained low. The averaged capital generation ratio (ACGR) is negative according to ACRA.

ACRA assesses the Bank’s operational efficiency as moderate. The operating expenses to operating income ratio (cost to income, CTI) averaged 62.4% over the last three years while the net interest margin (NIM) was 6.7%.

ACRA maintains its weak risk profile assessment for the Bank, however notes an increase in the quality of the Bank’s debt. The total volume of loans that ACRA considers to be problem and potentially problem reduced to 15.0% (compared to 18.6% as of January 1, 2018); NPL90+ reduced to 4.7% (compared to 17.2% as of January 1, 2018).

In addition, ACRA notes that the Bank maintains an acceptable concentration on the ten largest borrower groups, which amounted to 31.1% as of January 1, 2019 (28.5% as of January 1, 2018).

ACRA assesses the credit quality of assets outside the loan portfolio as satisfactory. However, ACRA notes the Bank’s large volume of non-profile assets in the form of investment property (more than 50% of the Bank’s equity as of January 1, 2019), which could affect the Bank’s risk profile assessment in the future. 

Adequate funding and liquidity assessment. The Bank is capable of withstanding a substantial outflow of client funds in both ACRA's base case and stress scenarios. ACRA notes no other imbalances over longer periods (the long-term liquidity shortage indicator, LTLSI, exceeded 85% as of January 1, 2019).

ACRA assesses the diversification of the Bank’s funding sources as acceptable. As of January 1, 2019, the concentration on the top 10 largest creditors was 22.7% of the Bank’s total liabilities. In addition, ACRA notes that in 2018, the Bank increased its share of funds from corporations from 45% of its resource base (January 1, 2018) to 50.6% (January 1, 2019).

ACRA also makes an upward adjustment to the Bank’s SCA given the likelihood of shareholder support. The adjustment takes into account the accumulated history of the Bank’s support from its key beneficiary and/or its companies. In compliance with the Methodology for Analyzing Member Company Relationships Within Corporate Groups, ACRA adjusts the SCA by one notch up.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • Maintaining problem loans no lower than 10% of the total loan portfolio;
  • Maintaining N1.2 higher than 9% within the 12 to 18-month horizon.

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:

  • Improvement in market position via growth in new business and an adequate level of risk on asset operations;
  • Further reduction of problem loans.

A negative rating action may be prompted by:

  • Deterioration in asset quality;
  • Decrease in operational efficiency;
  • Decrease in N1.2 below 9%;
  • Deterioration in liquidity and/or funding position.

Rating components

SCA: b.

Adjustments: +1 notch given shareholder support.

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, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

The credit rating of MARITIME BANK was published by ACRA for the first time on June 1, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.

The assigned credit rating is based on the data provided by MARITIME BANK, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of MARITIME BANK and statements of MARITIME BANK composed in compliance with the Bank of Russia Ordinance № 4927-U dated October 8, 2018. The credit rating is solicited, and MARITIME BANK participated in its assignment.

No material discrepancies between the provided information and the data officially disclosed by MARITIME BANK in its financial statements have been discovered.

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

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