Training on banks and NBCOs, January 30–31

ACRA affirms A(RU) to Center-invest Bank, outlook Stable, and A(RU) to bond issue

The credit rating assigned to Center-invest Bank (hereinafter, Center-invest Bank, or the Bank) is based on an adequate business profile, strong capital adequacy position, adequate risk profile assessment, and well-balanced liquidity and funding position. The Bank has a moderately high level of creditworthiness compared to other credit institutions in the Russian Federation.

Center-invest Bank is a regional bank with organic business expansion, ranking 73rd in terms of capital among Russian banks. The Southern Federal District is the key operation area of the Bank. Center-invest Bank specializes in consumer and SME lending, issuing guarantees, as well as providing leasing services via its wholly owned subsidiary LLC Center-leasing. The largest shareholders of the Bank include European Bank for Reconstruction and Development (19.7%), German investment corporation DEG (16.1%), as well as founders Mr Vasily Vysokov and Mrs Tatiana Vysokova (24.4%).

Key rating assessment factors

The adequate business profile (bbb) is determined by the Bank's stable position in the key operation area, both in lending and in attracting client funds. Center-invest Bank’s strategy appears well balanced and takes into account current trends of the Russian banking system development while the quality of the Bank’s corporate governance is assessed as high. The Bank’s business profile assessment is supported by the relatively high diversification of its operating income (as of the end of 2018, the Herfindahl-Hirschman Index was 0.19).

The Bank’s substantial capital cushion stems from retaining the loss absorption buffer in terms of accepted balance and off-balance sheet risks by both regulatory norms (N1.2 equaled 9.2% on June 1, 2019) and Basel standards (Tier-1 was 15.1% on December 31, 2018), which allows Center-invest Bank to sustain an increase in credit risk within 400-500 bps without receiving financial support from its shareholders. At the same time, the Bank’s ability to generate capital is strong (the average capital generation ratio, ACGR, totaled 122 bps for the past five years). The Bank’s operating efficiency indicators correspond to the market median; net interest margin, NIM, has averaged close to 6% over the past three years, while cost-to income ratio, CTI, before provisions has equaled 46%.

The adequate risk profile assessment is determined by an adequate risk management system as well as acceptable loan portfolio quality (78.5% of assets). The share of problem loans equals 12.4% of the total portfolio (including 6.3% of NPL90+, 0.7% of involuntarily restructured loans, and 5.5% of potentially problem loans, according to ACRA). Portfolio concentration on the 10 largest groups of borrowers (9.5% of the portfolio), high-risk industries (14% of core capital), and related parties (2% of core capital) is insignificant. Due to a strictly conservative approach, a significant part of the Bank’s temporarily free liquidity is placed in the Bank of Russia in the form of a deposit. Center-invest Bank performs no operations with securities; there are practically no non-core assets on the Bank’s balance.

The adequate liquidity and funding position is based on a sufficient amount of highly liquid assets for covering potential outflows. Therefore, the short-term liquidity shortage indicator, STLSI, in both base case and stress scenarios of ACRA, is fulfilled with a significant surplus. There are no substantial imbalances within longer-term horizons and no large-scale repayments are expected within the 12-month horizon.

Pronounced dependence of the Bank’s resource base on funds of individuals (77% of liabilities) is somewhat offset by a low concentration on the 10 largest groups of clients (3.8% of liabilities). The Bank does not raise funds from the regulator. No significant outflows are anticipated within the 12 to 18-month horizon. 

Key assumptions

  • Adhering to the current business model within the 12 to 18-month horizon;
  • Loan portfolio growth rate within 10% in 2019;
  • Cost of credit risk within 2%;
  • Tier-1 capital adequacy over 10% 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:

  • Material decline in problem loans;
  • Significant decrease in resource base concentration on the largest source.

A negative rating action may be prompted by:

  • Decrease of capital adequacy prompted by rapid asset or cost of risk growth;
  • Increase in problem loans within the Bank’s loan portfolio;
  • Deterioration of the liquidity position.

Rating components

Standalone creditworthiness assessment (SCA): a.

Adjustments: none.

Support: no systemic importance.

Issue ratings

Center-invest Bank, Certified exchange-traded interest-bearing non-convertible unregistered bond, BO-001Р-05 series (RU000A0ZZKP5), maturity date: March 3, 2022, issue volume: RUB 600 mln — А(RU).

Credit rating rationale. The issue represents senior unsecured debt of Center-invest Bank. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Bank in terms of priority. According to ACRA’s methodology, the credit rating of the issue is equivalent to that of Center-invest Bank, i.e. A(RU).

Regulatory disclosure

The credit ratings of Center-invest Bank and the bond (ISIN RU000A0ZZKP5) issued by Center-invest Bank have 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. In the course of assigning a credit rating to the bond issue above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

The credit ratings of Center-invest Bank and the bond (ISIN RU000A0ZZKP5) issued by Center-invest Bank were published for the first time by ACRA on July 26, 2018 and September 5, 2018, respectively. The credit rating and outlook of Center-invest Bank and the credit rating of the bond (ISIN RU000A0ZZKP5) issued by Center-invest Bank are expected to be revised within one year following the publication date of this press release.

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

No material discrepancies between the provided data and the data officially disclosed by Center-invest Bank in its financial statements have been discovered.

ACRA provided additional services to Center-invest Bank. No conflicts of interest were discovered in the course of credit rating assignment.

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