ACRA assigns ВВ+(RU) to Vozrozhdenie Bank, with the status "Rating under revision: developing"

The credit rating of Vozrozhdenie Bank (hereinafter, the Bank) is determined by weak assessments of capital adequacy and risk profile and adequate funding and liquidity position.

The status "Rating under revision: developing" reflects ACRA's opinion on the prospects for development and possible changes in both the Bank's standalone creditworthiness assessment (SCA) and the credit rating in the short-term period (up to 90 days). This period is specified in the Bank of Russia Regulation dated March 06, 2018 setting forth the period for reduction of the share owned by the group of shareholders of Vozrozhdenie (Bervessa Holding Ltd, Notilsera Holding Ltd, Reldans Holding Ltd, Rotilesa Holding Ltd, Tamilania Holding Ltd and Kostrano Investments Ltd), which, as of December 31, 2017, in aggregate owned 50.0034% the shares, to a level of not more than 10% of the authorized capital of the Bank.

Vozrozhdenie is a private bank, ranking 31st on the national scale in terms of own capital and operating in six RF federal districts, with focus on Moscow and the Moscow Region. The main strategic focus of the Bank includes corporate loans issued mainly to construction and real estate companies, trading and manufacturing enterprises, state and municipal institutions, as well as SME loans and mortgage loans.

Key rating assessment factors

The business profile assessment (bbb) is determined by the Bank's market positions and high diversification of operating income. It also takes into account the expected changes in the ownership structure, which, in ACRA's opinion, will likely lead to a change in the assessment of management quality and strategy factors.

Weak capital adequacy assessment is a result of the low loss absorption buffer by both Russian regulatory standards (as of April 1, 2018, N1.2 stood at 9.6%, with the regulatory minimum of 7.875%) and Basel capital requirements (at end-2017, Tier-1 equaled to 12.3%), coupled with a substantial share of non-performing and potentially non-performing loans in the Bank's portfolio. According to ACRA stress tests, the Bank is able to withstand an increase in the cost of risk by not more than 100 bps without shareholders’ support. At the same time, the Bank posted a loss for the year 2015, which still negatively affects its averaged capital generation ratio calculated for the last five years (as ACGR is as low as 40 bps). The Bank’s net interest margin (NIM) for the past three years corresponds to peer financial institutions (4.9%), while its operating efficiency is far behind (CTI equals to 58%).

Weak risk profile assessment is based on the high share of non-performing and potentially non-performing loans (16.2% as of December 31, 2017 (with NPL90+ at 5.9%, restructured loans at 3.2%, and non-performing (according to ACRA methodology) loans at 7.1%, mostly issued to corporate ex-shareholders)). The concentration on the top 10 borrower groups is rather high (18.2% of the portfolio). Moreover, risk profile assessment is limited by loan portfolio concentration on the construction and real estate sector (118% of the common capital). The share of loans issued to corporate ex-shareholders amounts to 40% of the common capital). The level of market and operational risks is not high.

Adequate assessment of liquidity and funding position. On the 90-day horizon, the Bank boasts around RUB 30 bln of short-term liquidity surplus under the base case scenario and a small short-term liquidity surplus equaling 2.4% of liabilities under the stress scenario. Liquidity may be sourced from securities that are not used in REPO transactions (RUB 38.4 bln, including funds received from Deposit Insurance Agency (DIA) within recapitalization through OFZ). Within longer-term horizons, the Agency observes no significant imbalances, with the long-term liquidity shortage indicator  (LTLSI) equaling 84% as of December 31, 2017, and no large redemptions expected in the coming 12 months.

The share of the largest funding source (funds of individuals and individual entrepreneurs) within the Bank’s funding structure is assessed as increased (72%); however, it is partially compensated by low concentration on the largest client groups (1.3% and 7% of liabilities fall to the largest lender and top 10 lenders, respectively). 

Key assumptions

  • Shareholder structure and strategy of the Bank will change;
  • Current profile and volume of the loan portfolio will remain unchanged in the short term;
  • Current liability structure will remain unchanged in the short term.

Potential outlook or rating change factors

A positive rating action may be prompted by:

  • A material increase in capital adequacy out of profit generated by the Bank and/or through recapitalization following a change in the shareholding structure;
  • A significant improvement of loan portfolio quality due to lower volume of non-performing loans and lower concentration on sectors bearing high risks.

A negative rating action may be prompted by:

  • Lower capital adequacy on the backdrop of credit risk actualization;
  • Deteriorating liquidity position of the Bank;
  • Higher concentration of funding base on the largest lenders.

Rating components

Standalone creditworthiness assessment (SCA): bb+.

Adjustments: none.

Support: systemic importance is absent.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation and is 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.

A credit rating has been assigned to Vozrozhdenie Bank for the first time. The credit rating and the credit rating status are expected to be revised within 90 days following the rating action date (May 25, 2018).

The assigned credit rating is based on the data provided by Vozrozhdenie Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of Vozrozhdenie Bank and statements of Vozrozhdenie Bank composed in compliance with the Bank of Russia Ordinance No. 4212-U dated November 24, 2016. The credit rating is solicited, and Vozrozhdenie Bank participated in its assignment.

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

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

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