ACRA has affirmed the credit rating of PJSC Asian-Pacific Bank (hereinafter, the Bank) based on an improvement in the liquidity and funding assessment from satisfactory to adequate and a simultaneous decrease in the capital adequacy assessment from adequate to satisfactory. The credit rating also accounts for the Bank’s moderately low business profile and critical risk profile assessments. Additionally, the credit rating is based on the Bank’s moderate level of systemic importance for the economies of several Russian regions and the state’s strong influence on the Bank’s creditworthiness, according to ACRA’s methodology.
The Developing outlook reflects ACRA's opinion on the highly likely change in the Bank's rating in the next 12–18 months, taking into account the expected sale of the Bank by its major shareholder, the Bank of Russia, to a third-party investor.
The Bank is credit institution ranking 65th in assets and 76th in equity among Russian banks. The Bank is developing as a full-service credit institution and is focused on unsecured consumer lending. The key regions for the Bank include the Far Eastern and Siberian Federal Districts. The Bank of Russia owns almost 100% of the Bank’s shares.
Key rating assessment factors
High likelihood of extraordinary support from the state. The Bank is a notable player in the financial services market of the Far Eastern and Siberian Federal Districts. In some constituent entities within those districts, the Bank's share in the total volume of funds deposited by individuals with banks is substantial. Moreover, the Bank services a range of budget organizations and state-owned companies, offering payroll projects and cash settlement services.
At the same time, ACRA assesses the systemic importance of the Bank as medium based on its limited importance for certain industries, living standards, and budget revenues. However, ACRA assess the degree of state influence as strong. The state retains full shareholder and operational control over the Bank. The government has supported the Bank with capital and liquidity in the past.
Given the the state’s support to the Bank, ACRA has adding two notches to the Bank's standalone creditworthiness assessment SCA (bb-).
The low business profile assessment (bb+) is determined by the Bank’s limited market positions and the low diversification of its operating income, which is formed mainly by interest income on consumer loans. The Bank’s strategy is aimed at further expanding its business as a full-service bank in the Far Eastern and Siberian Federal Districts. The development plans of the Bank are estimated by ACRA as realistic and consistent with the macroeconomic situation. However, ACRA believes that a change in the majority shareholder may result in the Bank’s strategy being adjusted. The quality of corporate governance is consistent with the scope of the Bank's business and objectives.
The decrease in the Bank's capital position to satisfactory reflects a decline in regulatory adequacy ratios as well as in ACRA’s assessment of the Bank’s ability to generate equity. As of October 1, 2019, N1.2 amounted to 8.77%, whereas this figure stood at 9.04 a year before. The decreased assessment of the Bank's ability to generate capital compared to the previous rating action reflects the losses taken in 2018 under IFRS, as well as the low assessment of the Bank's ability to generate capital under RAS for 2014-2018. ACRA notes that the financial result of the Bank is significantly affected by one-time revenues and expenses from transactions with previous shareholders. However, ACRA’s stress test shows that the Bank’s substantial unexpected loss absorption cushion allows it to withstand a 300-500 bp increase in the cost of credit risk. The Bank’s NIM and CTI ratios for 2016-2018 amounted to 6.6% and 55.1%, respectively.
ACRA maintains its critical assessment of the Bank’s risk profile given the low security of the loan portfolio and the high share of problem and potentially problem loans. As problem and potentially problem loans, ACRA considers NPL90+ corporate loans and NPL90-360 consumer loans as well as other loans. Most of the problem loans are those of former shareholders of the Bank and have a high level of reserve coverage. The predominantly retail nature of the Bank’s credit operations determines the low security of the portfolio.
The funding and liquidity assessment has been raised to adequate based on the moderate increase in the balance of the Bank’s assets and liabilities in terms of maturity, which is expressed by an increase in the long-term liquidity shortage indicator (LTLSI). In addition, the short-term liquidity shortage indicator (STLSI) in the base case and stress scenarios indicates that the Bank maintains a high level of security on obligations within a 90-day horizon. The Bank’s resource base is primarily made up of consumer funds (74.8% as of June 30, 2019), which, on the one hand, increases risk, and on the other, allows the Bank to maintain a low level of dependence on the largest creditors (depositors).
- Maintained state shareholder and operational control over the Bank’s activities until its sale;
- Provision of additional capital and liquidity by the Bank of Russia if necessary.
Potential outlook or rating change factors
The Developing outlook assumes an equal probability of the rating being either upgraded or downgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Substantial decrease in the amount of problem debt in the loan portfolio;
- Increase in capital adequacy and substantially improved ability to generate capital.
A negative rating action may be prompted by:
- Sale of the Bank to a buyer with low creditworthiness;
- Decrease in equity;
- Continued low ability to generate capital;
- Deterioration in liquidity and funding position.
Adjustments: SCA + 2 notches to account for state support.
No outstanding issues have been rated
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, Methodology for Analyzing Relationships Between Rated Entities and the State, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating assigned to PJSC Asian-Pacific Bank was published by ACRA for the first time on November 20, 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 the data provided by PJSC Asian-Pacific Bank, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of PJSC Asian-Pacific Bank and the financial statements of PJSC Asian-Pacific Bank drawn up in compliance with Bank of Russia Ordinance No. 4927-U, October 8, 2018. The credit rating is solicited, and PJSC Asian-Pacific Bank participated in its assignment.
No material discrepancies between the provided information and the data officially disclosed by PJSC Asian-Pacific Bank in their financial statements have been discovered.
ACRA provided additional services to PJSC Asian-Pacific Bank. No conflicts of interest were discovered in the course of credit rating assignment.