The credit rating of JSC CB «Poidem!» (hereinafter, the Bank) is based on the moderately weak business profile assessment, strong capital adequacy assessment, weak risk profile assessment, and the adequate funding and liquidity assessment.
The Bank is a small credit organization that specializes in risky, according to ACRA, unsecured retail lending (issuing credit cards and cash loans).
KEY ASSESSMENT FACTORS
The moderately weak business profile assessment (bb) is due to the Bank’s limited competitive positions in Russia’s banking sector (it ranked 135th in terms of equity as of September 1, 2021) and a high-risk business model, according to ACRA. The Bank is focused on providing unsecured consumer loans, which makes it potentially more vulnerable during periods of economic downturn.
The increased concentration of the Bank’s operating activities is somewhat offset by relatively high geographical diversification, which the Bank continues to increase by opening new offices in small cities.
The Bank’s main shareholders are a group of individuals, with the largest stake (33.5%) held by Valery Kuzovlev. The remaining stakes are held by Mikhail Beryozov (19.9%); Vladimir Voyeykov (17.9%); Natalya Varodi (8.7%); and Dmitry Dyakin, Inna Ryabova, and Leonid Batsev (6.7% each). The Agency continues to follow the situation related to ongoing litigation regarding the legality of historical changes in the Bank’s ownership structure. Nevertheless, at the moment, ACRA does not see a specific scenario under which the risks associated with this situation could impact the Bank’s activities and, therefore does not include them in its base case forecast.
The Bank’s strong capital position stems from its relatively high profitability indicators. Over the past few years, net interest margin (NIM) has been the determining factor for the Bank’s high profitability — according to the Agency, NIM has averaged about 22% since 2018, which is significantly higher than similar indicators for the sector, while CTI (cost to income, ratio of operating expenses to operating income) averaged for the last three years is a comfortable 54.5%. At the same time, the Bank’s averaged capital generation ratio (ACGR) for the past five full years has improved to 155 bps, and no longer includes losses recorded in 2015.
The Agency assumes that the Bank’s capital adequacy will remain at a relatively comfortable level (above 10%) over the next 12 to 18 months (N1.2 was 10.63% as of September 1, 2021, with a regulatory minimum of 6%). ACRA’s base case forecast assumes loan portfolio growth of 5−7% next year, which, along with an increase in add-ons to risk ratios for unsecured consumer loans, will create an additional burden on the Bank’s capital. In the Agency’s opinion, the Bank’s significant capital cushion and regular generation of profit allows it to absorb an increase in credit risk by more than 500 bps without violating capital adequacy ratios.
The Bank’s weak risk profile stems from the continued high level of problem debt. Loans in the 4th and 5th quality categories accounted for 29.4% of the loan portfolio as of September 1, 2021 (as of October 1, 2020 their share was 28.7%). The high share of problem exposure in the portfolio is largely due to the Bank’s refusal to write off non-performing loans and the practice of collecting overdue payments in court. However, ACRA positively views the fact that the Bank has not adopted an aggressive lending policy during this period of increased economic uncertainty — instead the Bank reduced its working loan portfolio in 2020–2021 in order to minimize potential credit losses and does not plan to increase its risk appetite next year.
As additional positive rating factors, ACRA notes full coverage of non-performing loans with provisions for impairment and the high granularity of the loan portfolio as factors somewhat mitigating risks.
Adequate funding and liquidity position. The Bank is able to withstand an outflow of client funds under both the base case (short-term liquidity surplus of RUB 2.2 bln) and stress scenarios (12.7% of liabilities). The Bank maintains a significant amount of funds on its balance sheet, as well as in accounts with the Bank of Russia and credit institutions with a high level of financial stability (about 22% of liabilities).
The Bank’s main source of funding is retail deposits, which account for around 89% of liabilities. The focus on retail operations means the Bank has low dependence on major creditors — the share of funds from the largest clients (groups of clients) in total liabilities was 6.6% as of June 30, 2021.
Maintaining the current business model over the 12 to 18-month horizon;
Maintaining ACGR above 50 bps;
Maintaining N1.2 capital adequacy ratio above 9% over the 12 to 18-month 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:
- Stabilization of consumer lending risks and a considerable decline in the share of problem debt.
A negative rating action may be prompted by:
N1.2 capital adequacy ratio going below 9% and ACGR consistently below 100 bps;
Significant decline in operating efficiency and profitability;
Deterioration of funding and liquidity position;
Negative consequences of the lawsuit on the ownership of the Bank’s stocks.
Standalone creditworthiness assessment (SCA): bb+.
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 and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of JSC CB «Poidem!» was published by ACRA for the first time on October 29, 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 CB «Poidem!», information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the IFRS consolidated statements of JSC CB «Poidem!» and statements of JSC CB «Poidem!» drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC CB «Poidem!» 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 CB «Poidem!». No conflicts of interest were discovered in the course of credit rating assignment.