ACRA affirms BB-(RU) to JSC NOKSSBANK, changes outlook to Stable

The credit rating of JSC NOKSSBANK (hereinafter, the Bank) is based on the Bank’s moderately low business profile assessment, strong capital adequacy position, weak risk profile, and adequate funding and liquidity assessment.

JSC NOKSSBANK is a regional credit organization that specializes in providing financial services primarily in Moscow and the Volgograd Region. The Bank’s central office is located in Volgograd. The Bank’s main activities are corporate and consumer lending, as well as providing bank guarantees. As of May 1, 2021, the Bank ranked 154th in capital and 232nd in assets among credit institutions in the Russian Federation.

ACRA has changed the outlook on the Bank’s credit rating from Negative to Stable to reflect the stability of capital adequacy and the growth of its absolute value, as well as ACRA’s expectations with regard to the performance of these indicators over the next 12 to 18 months.

Key rating assessment factors

The moderately low business profile assessment is based on the Bank’s low position in the Russian financial services market, satisfactory quality of management in the context of the Russian banking sector, and moderately diversified operating income. The Bank’s operating income is generated by interest income from corporations and individuals and commission income from issuing bank guarantees. The Agency notes the Bank’s sufficiently transparent ownership structure: Viktor Sinyukov and his son Dmitry exercise control over the Bank.

ACRA assesses the Bank’s capital adequacy strong as regulatory ratios are maintained at a sufficiently high level and the Bank has good operational efficiency. As of May 1, 2021, Tier 1 (N1.2) capital adequacy amounted to 18%. ACRA does not expect this indicator to fall below 12%. At the same time, the Agency notes that the Bank’s ability to generate capital is low, as its ACGR was negative for 2016–2020. Average cost-to-income reached 33% for 2018–2020, while NIM averaged 9.1%, which is higher than most competitor banks and has a positive influence on the capital adequacy assessment.

The Bank’s creditworthiness continues to be negatively impacted by the poor quality of its loan portfolio, which is due to a considerable share of problem loans and increased concentration on the ten largest borrowers. The Bank’s problem and potentially problem debt has declined compared to the indicator as of January 1, 2020, and according to ACRA, it amounted to more than 16% of the loan portfolio as of January 1, 2021. The share of debt of the ten largest groups of related borrowers also declined in 2020 to about 41% of the loan portfolio as of January 1, 2021. In general, the Agency assesses the quality of the Bank’s portfolio of issued guarantees as adequate.

According to ACRA, the quality of the Bank’s risk management system is satisfactory and corresponds to its scale and activities.

Adequate funding and liquidity position. The Bank is able to withstand a significant outflow of client funds in both ACRA’s base case and stress scenarios thanks to a large stock of highly liquid assets (mainly interbank loans and funds held with the Bank of Russia). ACRA assesses the Bank’s long-term liquidity position as strong, mainly due to the large volume of equity and its funding structure.

In the Agency’s opinion, the Bank’s concentration on the largest groups of creditors and depositors is heightened — the largest group of creditors accounts for 30% of all of the Bank’s liabilities, while the share of the ten largest groups of creditors stands at around 46%.

Key assumptions

  • Maintaining the current business model within the 12 to 18-month horizon;
  • Maintaining profitability of operations.

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:

  • Significant reduction of problem debt;
  • Reduced concentration of the loan portfolio.

A negative rating action may be prompted by:

  • Significant reduction of capital adequacy;
  • Deterioration of operational efficiency;
  • Deterioration of liquidity position;
  • Growth of lending to related parties;
  • Growth of problem debt and reduced quality of the portfolio of issued guarantees

Rating components

SCA: bb-.

Adjustments: none.

Issue ratings

There are no outstanding issues.

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 NOKSSBANK was published for the first time on July 2, 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 data provided by JSC NOKSSBANK, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of JSC NOKSSBANK and financial statements of JSC NOKSSBANK drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC NOKSSBANK 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 no additional services to JSC NOKSSBANK. No conflicts of interest were discovered in the course of credit rating assignment.

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