ACRA retains “Rating under revision: developing” status for JSCB “Moscow Industrial bank” PC

The status “Rating under revision: developing” assigned to the credit rating of JSCB “Moscow Industrial bank” PC (hereinafter, the Bank) reflects ACRA’s opinion on a possible change in the Bank’s credit rating in the short term due to the gradual implementation of a plan for the Bank of Russia’s participation in measures to prevent the bankruptcy of the Bank (hereinafter, the Participation Plan), and, as a result, a change in the Bank’s financial standing.

In the short term (by August 1, 2021 according to the Bank of Russia), ACRA expects the Bank’s problem and non-core assets to be moved to National Bank TRUST. In the long term, ACRA expects a 100% stake in the Bank to be transferred to Rosimushchestvo and then subsequently transferred to Promsvyazbank PJSC (ACRA rating AA(RU), outlook Stable). In ACRA’s opinion, if necessary the Bank of Russia will provide financial support to the Bank, including taking into account the guarantee from January 21, 2019 of the continuity of the Bank’s activities during the implementation of the Participation Plan.

Key rating assessment factors

The BB+(RU) credit rating took into account the Bank’s moderate degree of systemic importance and strong state influence on its creditworthiness. The Bank’s standalone creditworthiness assessment (SCA) was characterized, on the one hand, by a satisfactory business profile assessment and adequate liquidity and funding positions, but on the other hand by weak capital adequacy and a critical risk profile, which greatly constrain the credit rating.

Since mid-August 2020 until June 2021, the Bank violated a number of mandatory capital adequacy ratios due to the additional creation of provisions for assets in August 2020. In particular, as of June 1, 2021, the N1.0 ratio was 7.2%, while the minimum ratio required by the regulator was 8%, and N6, the maximum risk ratio for a single borrower or a group of related borrowers, exceeded the maximum allowed figure of 25%. In addition, as of May 1, 2021 and June 1, 2021, N1.1, N1.2 and N1.4 exceeded the minimum required levels set by the regulator, largely due the Bank receiving profit mainly from the breaking up of provisions for retired assets and the related increase in the volume of regulatory capital.

The status “Rating under revision: developing” reflects ACRA’s need to conduct additional analysis of the Bank’s financial standing, including after the Bank of Russia transfers part of the Bank’s problem and non-core assets to National Bank TRUST. ACRA plans to review the Bank’s credit rating status within the next 90 days.

Key assumptions

  • The state retaining its shareholder control over the Bank;
  • Provision of capital and/or liquidity from the state if necessary.

Potential outlook or rating change factors

The “Rating under revision: developing” status assumes that the rating may be changed within the next 90 days.

Removal of the “Rating under revision: developing” status and affirmation or upgrade of the credit rating may be prompted by:

  • Recovery of capital positions after provision of financial support by the Bank of Russia;
  • Significant decline in the share of problem loans and decline in the share of non-core assets on the Bank’s balance sheet due to their transfer to National Bank TRUST;
  • A different decision made by the Bank of Russia that would improve the financial sustainability of the Bank.

Removal of the “Rating under revision: developing” status and downgrade of the credit rating may be prompted by:

  • Loss of shareholder control over the Bank by the state;
  • Lack of support in term of capital from the Bank of Russia;
  • Decline in liquidity and/or funding position.

Rating components

SCA: bb-.

Adjustments: none.

Support:  state support, +2 notches.

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 Analyzing Relationships Between Rated Entities and the State, which was valid as of the performance of the rating action to affirm the credit rating of  JSCB “Moscow Industrial bank” PC published on August 5, 2020, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. The Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation was applied in order to determine certain factors of the standalone creditworthiness assessment.

The credit rating of JSCB “Moscow Industrial bank” PC was published by ACRA for the first time on August 12, 2019. The credit rating and its outlook are expected to be revised within 90 days following the publication date of this press release.

The credit rating was assigned based on data provided by JSCB “Moscow Industrial bank” PC, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated statements of JSCB “Moscow Industrial bank” PC and the statements of JSCB “Moscow Industrial bank” PC drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSCB “Moscow Industrial bank” PC participated in its assignment.

In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

ACRA provided additional services to JSCB “Moscow Industrial bank” PC. No conflicts of interest were discovered in the course of credit rating assignment.

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