ACRA assigns B+(RU) to "NK Bank," outlook Stable

The credit rating assigned to "NK Bank" (hereinafter, the Bank) is due to the Bank’s moderately low business profile assessment, adequate capital adequacy, critical risk profile assessment, and satisfactory liquidity and funding position.

The Bank is a universal credit institution that ranked 150th in equity among Russian banks as of December 1, 2020. The Bank offers services to corporate and retail customers. The Bank’s main business lines are lending to industrial enterprises and private banking services.

The Bank is owned by V.E. Grigoriev and his family (90% stake) and S.N. Smirnov, Bank's CEO (10% stake).

Key rating assessment factors

The moderately low business profile assessment (bb) reflects, first, the Bank’s relatively low share in the Russian financial services market (ranked 144th in assets). The Bank’s business diversification is relatively high. Operating income comes mainly from interest revenues on loans issued to clients (over 70%). According to ACRA’s calculations, the Herfindahl-Hirschman index stood at 0.25 as of June 1, 2020.

The Bank's strategy envisages maintaining positions in the corporate segment and in servicing high net worth individuals. Earlier, the Bank actively invested in securities issued by industrial enterprises, including through public-private partnerships. In the future, the Bank may resume such investments.

ACRA assesses the Bank’s capital adequacy as adequate. As of October 1, 2020, the Bank's capital adequacy ratios were healthy (N1.1 and N1.2 of 16.5%). This allows the Bank to withstand an increase in the cost of risk above 500 bps without violating the N1.2 ratio, even in case the Bank is forced to increase significantly its reserves for the loan portfolio.

The Bank’s capacity to generate capital is assessed as low, because the averaged capital generation ratio (ACGR) for 2015–2019 is 17 bps. The assessment is also constrained by the Bank's low operating efficiency: the average ratio of operating costs to income before provisions exceeds 75% for the last three years.

The Bank’s critical risk profile is due to the high concentration of the loan portfolio on the 10 largest groups of borrowers (about 64% of the total loan portfolio) along with a high share of problem and potentially problem loans (over 15% of all loans, of which 5.4% is NPL90+).

As of October 1, 2020, the quality of most assets outside the loan portfolio is high. The share of non-core assets on the Bank's balance sheet does not exceed 10% of the total common capital.

Satisfactory position in funding and liquidity. As of October 1, 2020, the Bank was able to withstand a substantial outflow of client funds both in the base case scenario (over RUB 5 bln in liquidity reserves) and in the stress scenario (excess of 12% of total liabilities). The long-term liquidity is adequate; the long-term liquidity shortage indicator (LTLSI) stood at around 77%.

The Bank's funding profile is dominated by funds from individuals (59.6% of liabilities as of October 1, 2020). On the other hand, the share of relatively large depositors and lenders is high, and ACRA notes that the concentration of resources on top 10 customers (groups) is significant (42.6% of liabilities).

Key assumptions

  • Maintaining the current strategy and business model within the 12 to 18-month horizon;
  • Maintaining N1.2 above 12% within the 12 to 18-month horizon;
  • Positive net profit in 2020–2021.

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:

  • Reducing the level of problem and potentially problem loans;
  • Significant reduction of the loan portfolio’s concentration;
  • Reducing dependence on the largest groups of depositors and lenders.

A negative rating action may be prompted by:

  • Decrease in N1.2 below 12%;
  • Significant deterioration in liquidity position;
  • Increased dependence on funds from the largest lender/depositor.

Rating components

SCA: b+.

Adjustments: none.

Support: no.

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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating has been assigned to "NK Bank" for the first time. 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 "NK Bank", information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of "NK Bank" and the financial statements of "NK Bank" drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and "NK Bank" participated in its assignment.

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

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

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