Training on Forecasting, April 7–8

ACRA affirms ВВВ+(RU) to Bank JSC MMA, changes outlook to Negative

The change in the outlook on the credit rating of Bank Joint Stock Company "Moscow Mortgage Agency" (the Bank) reflects ACRA's opinion on the expected downgrade in the standalone creditworthiness assessment (SCA) of the Bank in the mid-term, coupled with a possible decline in the likelihood of extraordinary support from the Government of Moscow, which may be driven by recent changes in the shareholding structure of the Bank.

Until January 2020, the Bank was 100% owned by the Moscow City Property Department.

The current controlling shareholder of the Bank (with a 100% stake) is the Central Fuel Company JSC, which is owned by the Moscow City Property Department.

Bank JSC MMA is a relatively small universal bank with a limited regional concentration on Moscow region and a focus on corporates owned by or related to Moscow government. As well as retail consumers, including those serviced under the municipal social programs.

Key rating assessment factors

The abovementioned change in the shareholder structure may impair the current support to the Bank, including its opportunities in servicing and attracting funds from corporates associated with the city of Moscow and their employees, as well as access to projects implemented by the Moscow government, which will affect the Bank's SCA, mostly its business profile metrics.

Currently, the Bank's SCA hinges on the satisfactory business profile, strong capital adequacy, critical risk profile, and adequate funding and liquidity position (the Bank's performance was assessed using its financial statements as of July 01, 2019 and taking into account its RAS financial statements as of January 01, 2020).

The final credit rating takes into account the likelihood of extraordinary support to the Bank from government authorities, backed by the strong influence of the state on its creditworthiness, and the low systemic importance of the Bank for the economy of the region of its presence.

Key assumptions

  • The Bank will manage to maintain its capital adequacy and liquidity ratios at their current high levels;
  • ACRA will obtain information material to assess the effects of the change in the Bank's shareholding structure on its operations and performance in order to determine the SCA and the final credit rating.

Potential outlook or rating change factors

The Negative outlook assumes the possibility of a negative rating action over the next 12 to 18 months.

A positive rating action may be prompted by:

  • A significant decline in problem loans, lower concentration of the loan portfolio;
  • Formation of an adequate business model and adjustment of the strategic goals for the Bank.

A negative rating action may be prompted by:

  • Less strict operating control and lower significance of the Bank for the Moscow government;
  • A loss by the state of its shareholding control over the Bank;
  • Lower diversification of the operating income;
  • Lower operating efficiency of the Bank;
  • Deteriorating liquidity position;
  • A significant decline in capital adequacy ratios.

Rating components

SCA: bbb.

Adjustments: state support — one notch up 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 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 Relationships Between Rated Entities and the State, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of Bank JSC MMA was first published by ACRA on August 30, 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 Bank JSC MMA, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of Bank JSC MMA and the financial statements of Bank JSC MMA drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 08, 2018. The credit rating is solicited, and Bank JSC MMA participated in its assignment.

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

ACRA provided no additional services to Bank JSC MMA. No conflicts of interest were discovered in the course of credit rating assignment.

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