ACRA upgrades JSC CB Solidarnost to B+(RU), changes outlook to Positive

The credit rating of JSC CB Solidarnost (hereinafter, the Bank) has been upgraded in connection with its merger with Bank Joint Stock Company "Moscow Mortgage Agency" (hereinafter, Bank JSC MMA).

The credit rating assigned to the Bank is based on its moderately low business profile assessment, satisfactory capital adequacy, critical risk profile assessment, and adequate assessment of the funding and liquidity position.

The Bank is a medium-sized credit institution registered in Samara. The Bank is focused on corporate lending and retail deposits. ACRA expects the Bank to rank 59th in terms of capital among Russian banks after the merger with Bank JSC MMA is complete.

Key rating assessment factors

The Bank is currently undergoing a financial rehabilitation procedure designed to turn it into a credit institution that serves cash flows and goods turnover between Russia, China, Vietnam, and other South East Asian countries and the CIS. The Bank will begin to service individuals under the social programs of Moscow and the city’s companies after merging with Bank JSC MMA.

The financial rehabilitation is administered by Zarubezhenergoproekt JSC (the Bank’s sole owner), whose financial position is characterized by significant leverage and an insufficient rate of income generation. In March 2020, Zarubezhenergoproekt JSC placed an additional issue of ordinary shares via a private offering to Central Fuel Company Joint-Stock Company (hereinafter, CFC JSC), which is wholly owned by the Government of Moscow. CFC JSC paid for the shares by transferring a 100% stake in Bank JSC MMA to Zarubezhenergoproekt JSC. On June 3, 2020, Zarubezhenergoproekt JSC became the sole owner of Bank JSC MMA, while CFC JSC received a 49.72% stake in Zarubezhenergoproekt JSC.

The aforementioned merger should have a positive impact on the Bank's franchise and, as a result, on its business profile. The deal was announced in June 2020 and is expected to be completed by the end of August 2020.

According to IFRS statements, as of March 31, 2020, the Bank’s assets amounted to RUB 33.3 bln, while the assets of Bank JSC MMA stood at RUB 19.0 bln as of December 31, 2019. The financial rehabilitation plan envisages further growth of the total balance and a return to profitability in 2021. The Positive outlook with regard to the Bank’s rating is a reflection of ACRA’s expectations that the Bank’s business profile assessment will improve in the future.

The organizational structure of the Bank matches the scope and specifics of its business.

Key assumptions

  • Maintaining the current business indicators as part of the financial rehabilitation plan;
  • Keeping the N1.2 ratio above 12% within the 12 to 18-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:

  • Improved market position;
  • Significant decrease in the level of problem loans;
  • Lower concentration of the Bank’s loan portfolio on the 10 largest groups of borrowers;
  • Return to profitability and improvement of the capital position.

A negative rating action may be prompted by:

  • Deteriorating business profile assessment;
  • Deteriorating capital position due to further losses;
  • Deteriorating funding and liquidity position.

Rating components

SCA: b+.

Adjustments: none.

Support: 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 JSC CB Solidarnost was published by ACRA for the first time on May 22, 2019. 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 JSC CB Solidarnost, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC CB Solidarnost and the financial statements of JSC CB Solidarnost drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC CB Solidarnost participated in its assignment.

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

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

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