Training on sovereign risk credit analysis, October 24

ACRA assigns B(RU) to MARITIME BANK, outlook Stable

The credit rating assigned to MARITIME BANK (hereinafter, the Bank) is based on weak market position, satisfactory capital adequacy, weak risk profile and adequate liquidity and funding position.

MARITIME BANK is a medium-sized, in terms of assets, bank based in Moscow with a focus on corporate clients, in particular, the maritime and river transportation industries. As at January 1, 2018, the Bank ranked 195th in terms of capital among the Russian banks. Sergey Generalov is the major beneficiary (controlling 99.84% of shares) who also acts as a member of the board of directors of the credit institution.

Key rating assessment factors

Relatively low business profile assessment stems from weak franchise of the Bank in the Russian banking market coupled with low diversified operating income. The strategy of MARITIME BANK is based on corporate banking services (with a focus on maritime and river transportation companies) and selected retail segments (payroll projects, etc.). In ACRA's opinion, the size of the Bank and intense competition in the industry limit the Bank's abilities to attain its goals.

ACRA assesses the business diversification as low. According to ACRA estimates, the Herfindahl-Hirschman Index stood at 0.5 as at January 1, 2018, which is related to high share of interest income (around 73.4%) in the operating income profile. The Bank has a transparent ownership structure.

ACRA assesses the Bank’s capital adequacy as satisfactory. As at May 1, 2018, MARITIME BANK maintains ample capital adequacy ratios (N1.1 at 11%, N1.2 at 11%, N1.0 at 12.53%), which ensures that credit risk absorption capacity would be acceptable in the next 12-18 months. A stress test performed in line with the ACRA methodology showed that the Bank is capable of withstanding a gain in the cost of risk of 300-500 bps without breaching the N1.2 ratio.

ACRA notes that, in 2016–2017, the Bank's capital adequacy was supported mostly by a capital injection from the shareholder, conversion of subordinated loans into equity and positive revaluation of investment real estate.

In 2013-2017, the Bank’s capital generation capacity was low. In 2015 and 2016, MARITIME BANK recorded substantial losses resulting from a sharp increase in the provisions. The averaged capital generation ratio (ACGR) totaled -229 bps for the last five years.

Weak risk profile of the Bank is driven by the moderate concentration on the top 10 borrower groups (31.7%) and the high share of problem loans (15–20%, according to ACRA estimates as at May 1, 2018, including NPL90+ at 8.8% against 17.2% as at January 1, 2018).

The credit quality of assets other than the loan portfolio (interbank loans, securities, the portfolio of guarantees, and investment property) is assessed as satisfactory.

The risk management system quality is currently assessed as satisfactory. ACRA notes that the Bank’s risk management team failed to avoid credit risk materialization, which resulted in the need to create substantial additional loan loss provisions.

Adequate funding and liquidity assessment. The Bank is capable of withstanding a substantial outflow of client funds in both ACRA's base case and stress scenarios (the liquidity shortage equals 8.3% of liabilities). We note no longer-term imbalances (the long-term liquidity shortage indicator (LTLSI) totaled 80% as at April 1, 2018).

Funding sources diversification is assessed as acceptable. As at April 1, 2018, the concentration on top ten largest creditors was 31.4% of the total liabilities of the Bank, which is caused by a one-time inflow of funds from a single client. ACRA notes that the main funding source of the Bank is funds deposited by individuals, which share was below 60% as at April 1, 2018.

Key assumptions

  • Adhering to the current strategy and business model within the 12 to 18-month horizon;
  • Maintaining high quality of the securities portfolio;
  • Sustaining the share of problem loans at not lower than 10% of the total loan portfolio;
  • Maintaining Tier-1 capital adequacy (N1.2) above 9% within the 12 to 18-months 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:

  • A substantial decrease in the non-performing loans;
  • Sustaining the current level of core capital adequacy.

A negative rating action may be prompted by:

  • Asset quality deterioration;
  • A lower operational efficiency;
  • A drop of Tier-1 capital adequacy ratio (N1.2) below 9%;
  • An increased dependence on funds of the top ten largest creditors.

Rating components

SCA: b.

Adjustments: none.

Support: none.

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 MARITIME BANK for the first time. The credit rating and its outlook are expected to be revised within one year following the rating action date (May 31, 2018).

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

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

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

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