ACRA upgrades PJSC «AKIBANK» to BB(RU), changes outlook to Stable

ACRA has upgraded the credit rating of Joint Stock Commercial Mortgage Bank AKIBANK (Public Joint Stock Company) (hereinafter, the Bank) due to an improvement in the Bank’s business profile assessment to bb. The Bank’s rating is also characterized by 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.

ACRA does not expect any significant changes in the key factors of the rating assessment with the 12 to 18-month horizon. As such, ACRA has changed the outlook to Stable.

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, 2020, the Bank ranked 130th in assets and 112th in loan portfolios among Russian banks, as well as 3rd in assets among banks in Tatarstan. The Bank is headquartered in Naberezhnye Chelny.

Key rating assessment factors

ACRA has increased the Bank’s business profile assessment to bb based on the analysis of certain parameters of its development compared to credit institutions with similar business models. In its assessment, ACRA assumes that management quality, a conservative development strategy, and the stability of the customer base will allow the Bank to weather the economic downturn without significantly reduced financial stability or deterioration in franchise quality. However, the Bank’s position in Russia’s financial services market remains weak (the Bank ranked 122nd in capital as of April 1, 2020) and the diversification of operating income is low, which is due to the high share of interest income from corporate loans (more than 52% of total revenue). In addition, ACRA notes the limited transparency of the Bank’s ownership structure with a significant amount of shareholder capital belonging to companies registered in the Republic of Cyprus.

ACRA maintain its strong assessment of the Bank’s capital adequacy. As of March 1, 2020, the Bank’s N1.2 ratio stood at 19.54%. 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 significantly higher than 500 bps. At the same time, the Bank’s ability to generate capital remains low. In 2015-2019, the averaged capital generation ratio amounted to 32 bps, a result of weak operational efficiency. The Bank’s cost to income (CTI) indicator reached 73% for 2017-2019 (70% for 2016-2018). The Bank shows a high operating margin, as its net interest margin (NIM) averaged 6.6% in 2017-2019.

ACRA maintains its low assessment of the Bank’s risk profile, which is due to the deterioration of the operating environment and the high concentration of the loan portfolio. According to ACRA, the total volume of problem loans (Stage 3 loans under IFRS 9) as of December 31, 2019, was 9.3% (9% one year earlier). Reserve coverage on these loans is close to 100%. However, the Bank’s portfolio includes a number of loans, whose servicing depends on the duration of quarantine measures. This results in the total volume of problem and potentially problem debt reaching 17%. According to ACRA, negative factors also include the high concentration of the loan portfolio. The share of loans granted to the ten largest groups of borrowers amounted to around 42% as of December 31, 2019.

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. ACRA’s base case scenario shows a liquidity surplus of RUB 10 bln, while the stress test scenario indicates 35%. 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 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 does not create additional risks for the Bank.

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 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:

  • Passing the period of restriction on activities by a number of borrowers without losing their ability to pay;
  • Continued reduction of loan portfolio concentration;
  • Decreased volume of non-core assets.

A negative rating action may be prompted by:

  • Deterioration in operational efficiency (growth in CTI);
  • Deterioration in liquidity position;
  • Increased share of the ten 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 the 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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