The credit rating of LLC CB «GT BANK» (hereinafter, the Bank) is based on the Bank’s moderately low business profile assessment, strong capital adequacy, critical risk profile assessment, and adequate liquidity and funding position.
The Bank is a small credit organization that operates mainly in the Krasnodar Krai. The Bank’s core activities are corporate lending, in particular to companies providing utilities services, and raising funds from individuals. As of April 1, 2021, the Bank ranked 171st in terms of equity among Russian banks.
The Bank’s ownership structure is completely transparent. The main shareholders are D. R. Isaev, holding a 64.5% share in the authorized capital, and his relative P. R. Yakubova, holding a 26.3% share.
Key rating assessment factors
The moderately low business profile assessment (bb-) reflects the Bank’s relatively low share in the Russian financial services market (it ranks 216th in terms of assets). At the regional level, however, the Bank holds adequate market positions and has a stable base of borrowers and depositors.
ACRA assesses the Bank’s business diversification as low. Operating income comes mainly from interest revenues on loans issued to clients (82% of operating income). According to ACRA’s calculations, the Herfindahl–Hirschman index stood at 0.44 as of January 1, 2021.
The Bank’s strategy provides for growth in its loan portfolio, resource base, and capital. In terms of active operations, the Bank intends to retain its focus on corporate lending. The Bank also intends to develop its line of commission products for legal entities in order to increase non-interest revenues and further diversify the structure of its liabilities.
ACRA assesses the Bank’s capital adequacy as strong. As of January 1, 2021, the Bank maintained its capital adequacy with reserves (N1.1 and N1.2 stood at 22%). This allows the Bank to withstand an increase in the cost of risk higher than 500 bps without violating the N1.2 ratio.
ACRA notes that the Bank’s ability to generate capital tends to decline due to shrinking net interest margin. Nevertheless, over the past five years the Bank has demonstrated positive financial results. The estimated averaged capital generation ratio (ACGR) is medium and amounts to 144 bps for 2016–2020.
The Bank’s critical risk profile is due to the high concentration of the loan portfolio on the 10 largest groups of borrowers (more than 75% of the total loan portfolio) along with a high share of problem and potentially problem loans (24% of all loans, of which 10% are NPL90+).
Adequate funding and liquidity position. As of January 1, 2021, the Bank was able to withstand a substantial outflow of client funds both in ACRA’s base case (the liquidity reserve is around RUB 500 mln) and in the stress scenarios (shortage in liquidity of less than 5%). Long-term liquidity is assessed as strong: the long-term liquidity shortage indicator (LTLSI) was around 100%.
The diversification of funding sources is assessed as moderate. The Bank’s main funding source is funds from individuals (89% of liabilities as of January 1, 2021), and therefore ACRA does not note any significant concentrations of resources on individual clients (groups) (the 10 largest clients (groups) accounted for only 8.6% of liabilities).
- Maintaining the current strategy and business model within the 12 to 18-month horizon;
- Maintaining N1.2 above 12% within the 12 to 18-month horizon;
- Cost of credit risk at 3–4%.
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:
- Declining level of problem loans;
- Declining concentration of the loan portfolio on the 10 largest groups of borrowers;
- Lower dependence on the main source of funding by drawing from different sources.
A negative rating action may be prompted by:
- N1.2 falling below 12%;
- Deterioration in liquidity position;
- Increased dependence on funds from the largest creditors (depositors).
There are no outstanding issues.
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 LLC CB «GT BANK» was published by ACRA for the first time on May 17, 2019. 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 LLC CB «GT BANK», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS financial statements of LLC CB «GT BANK» and the financial statements of LLC CB «GT BANK» drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and LLC CB «GT BANK» 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 LLC CB «GT BANK». No conflicts of interest were discovered in the course of credit rating assignment.