ACRA affirms A-(RU) to PJSC SCB "Metallinvestbank", outlook Stable, and A-(RU) to its bond issues

The credit rating of PJSC SCB "Metallinvestbank" (hereinafter, the Bank) is based on the Bank's sustainable business profile, strong capital adequacy, adequate risk profile, and adequate funding and liquidity position.

Metallinvestbank is part of United Metallurgical Company (OMK), a major metallurgical holding company in Russia. 100% of the Bank’s shares belong to OMK-Service JSC, whose beneficiary is Anatoly Sedykh (100%).

Key rating assessment factors

The Bank’s satisfactory business profile assessment is determined by the limited position currently occupied by the Bank in the Russian banking market (64th in terms of capital). The Bank’s head office is located in Moscow, and its five branches are in Belgorod, Vyksa, Nizhny Novgorod, Perm, and Novosibirsk. The Bank focuses on lending to corporate and retail customers, factoring, issuing bank guarantees, as well as transactions in securities, foreign currency, and derivative financial instruments.

The Bank’s business is highly diversified: the Herfindahl-Hirschman Index is 0.22. At the same time, ACRA notes that the Bank’s corporate portfolio is concentrated on lending to trading enterprises, mainly through factoring transactions.

The ownership structure is transparent. The corporate management system corresponds to the business scale and scope of the Bank. Its development strategy until 2025 provides for organic growth and ACRA assesses it as adequate.

ACRA notes that the Bank’s loss absorption capacity is relatively high under both RAS standards (as of October 1, 2020, the N1.2 ratio was 10.95% and Basel standards (the IFRS Tier 1 capital adequacy ratio was 9.4% of total risk-weighted assets at the end of September 2020). According to ACRA’s stress test, the Bank can absorb a significant increase in the cost of risk (by more than 500 bps) without violating regulatory standards. The Bank’s ability to generate capital from retained earnings is assessed as moderate: the averaged capital generation ratio (ACGR) under IFRS amounted to 110 bps for the last five years.

The Bank’s net interest margin (NIM) is comparable to that of its peers, equaling close to 5% for the last three years, and the three-year average CTI (cost-to-income) ratio is about 53%. In the medium term, CTI may grow slightly, taking into account the Bank's development plans.

The adequate risk profile is based on the satisfactory assessment of the risk management system and the good quality of assets. As of October 1, 2020, according to ACRA's estimates, the share of problem loans was 6% of the total loan portfolio, which is assessed by ACRA as moderate. The coverage of possible losses by reserves is positively assessed by the Agency. The concentration of the loan portfolio on the top 10 groups of related borrowers is assessed as moderate (about 16% of the total loan portfolio). ACRA notes that the growth rate of the loan portfolio has increased over the past 12 months (about 22%) and takes into account the risks of possible deterioration in asset quality in 2021 due to increased risks of the operating environment.

The loan portfolio shows a low level of concentration on high-risk industries (about 28% of Tier 1 capital under IFRS). The Bank’s securities portfolio (Russian government bonds and corporate bonds) is of high quality.

The funding and liquidity position is adequate. The Bank has a short-term liquidity surplus both in ACRA’s base case and stress scenarios and an adequate long-term liquidity profile. The concentration of funding on the largest lenders / groups of lenders is assessed as moderate.

Key assumptions

  • Maintaining the current structure of shareholder control;
  • Maintaining the Bank’s current business model within the 12 to 18-month horizon;
  • Cost of credit risk no more than 3% within the 12 to 18-month horizon;
  • Level of problem loans no higher than 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:

  • Organic growth in the Bank's business in the long term amid sustainable quality of the loan portfolio and other balance sheet and off-balance sheet assets.

A negative rating action may be prompted by:

  • Lower capital adequacy ratios;
  • Decrease in the credit quality of assets;
  • Deteriorating liquidity position;
  • Decrease in diversification of key funding sources.

Rating components

SCA: a-.

Issue ratings

Exchange-traded interest-bearing certified unregistered bond, BО-03 series (ISIN RU000A0ZZL05), maturity date – September 4, 2023, issue amount – RUB 3 bln — A-(RU).

Exchange-traded interest-bearing certified unregistered bond, BО-PO-01 series (ISIN RU000A1026W9), maturity date – September 30, 2021, issue amount – RUB 2 bln — A-(RU).

Rationale. The bond issue is a senior unsecured debt instrument of Metallinvestbank. Due to the absence of either structural or contractual subordination of the issue, ACRA regards it as equal 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 Metallinvestbank — A-(RU).

Regulatory disclosure

The credit ratings have been assigned to PJSC SCB "Metallinvestbank" and the bonds issued by PJSC SCB "Metallinvestbank" (ISIN RU000A0ZZL05, RU000A1026W9) 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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale for the Russian Federation was also used to assign the credit rating to the issues listed above.

The credit ratings assigned to PJSC SCB "Metallinvestbank" and the bonds issued by PJSC SCB "Metallinvestbank" were published by ACRA for the first time on February 2, 2018, September 10, 2018, and October 8, 2020, respectively. The credit rating of PJSC SCB "Metallinvestbank" and its outlook and the credit ratings of the bonds issued by PJSC SCB "Metallinvestbank" are expected to be revised within one year following the publication date of this press release.

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

No material discrepancies between the provided information and the data officially disclosed by PJSC SCB "Metallinvestbank" in its financial statements have been discovered.

ACRA provided no additional services to PJSC SCB "Metallinvestbank". No conflicts of interest were discovered in the course of credit rating assignment.

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