The credit rating of JSC KOSHELEV-BANK (hereinafter, the Bank) has been upgraded due to the improvement of the risk profile as a result of the lower share of problem loans. The rating is also based on the moderately low business profile assessment, satisfactory capital adequacy, and adequate liquidity and funding.

The Bank is a regional credit institution specializing in financial services primarily in the Samara Region. As of October 1, 2021, the Bank ranked 151st in assets and 122nd in loan portfolios among Russian banks. The Bank is headquartered in Samara.

KEY ASSESSMENT FACTORS

The moderately low business profile assessment (bb) is based mainly on the Bank’s weak position in the Russian financial services market (it ranks 169th in terms of equity). The Bank is developing as a universal credit institution, providing financial services to both corporations and consumers. The Bank’s development is focused on SME lending, consumer mortgage lending, and securities trading. The Agency believes that the Bank’s strategy generally meets the macroeconomic and regional prerequisites for development, and that the quality of corporate governance corresponds to the Bank’s scale and its areas of activity. The Bank’s diversified sources of operating income remains a positive factor in assessing the business profile. The Herfindahl-Hirschman Index was less than 0.27x at the end of H1 2021, while the Agency notes the impact on operating income of a negative revaluation of the securities portfolio. In addition, ACRA notes there is a trend toward declining operating income at the Bank. 

ACRA assesses the Bank’s capital adequacy as satisfactory based on adequate regulatory adequacy ratios and weak operating performance indicators. As of October 1, 2021, N1.2 stood at 11.03%, and averaged 11.52% over the past 12 months. At the same time, ACRA notes the Bank’s moderate ability to generate capital, as the averaged capital generation ratio (ACGR) amounted to 108 bps for 2016−2020. Ineffective operations continue to limit the Bank’s ability to generate capital. The Bank’s CTI was 66.5% for 2018−2020, while NIM averaged 3.6% for the same period. ACRA notes that in 2021, the Bank started paying dividends, which in the Agency’s opinion will not influence the assessment of this sub-factor. In addition, the Bank expects business profitability to grow in forthcoming years. ACRA’s stress test shows that the Bank’s significant unexpected loss absorption cushion together with its current ability to generate new capital allows it to withstand an increase in credit risk of 300−500 bps.

The improvement of the risk profile assessment to weak reflects the improved quality of the Bank’s loan portfolio. As of June 30, 2021, the share of Stage 3 loans had declined to 3.8% (5.8% as of June 30, 2020), while the total volume of loans classified by ACRA as problem and potentially problem stood at 8.1% (10.7% as of June 30, 2020), which according to ACRA’s methodology is grounds for improving the assessment of loan portfolio quality. The share of loans granted to the ten largest borrowers was 27.7% as of June 30, 2021. Factors that limit the risk profile assessment include the large volume of loans provided to companies working in the construction and real estate sector (around 1.4x of common capital). However, the Agency notes that part of the loans issued to the construction sector according to IFRS reporting have been provided to companies operating under government contracts. ACRA also takes into account the considerable volume of accepted market risk (around 1.5x common capital). At the same time, the Agency notes that the Bank’s securities portfolio is made up of by instruments of sufficiently high credit quality.

ACRA assesses the Bank’s liquidity and funding position as adequate. At the same time, liquidity is strong. The short-term liquidity shortage indicator confirms this in particular; excess liquidity in the base case scenario is RUB 3.3 bln, and 8.6% in the stress scenario. The strong short-term liquidity position is due to the large amount of securities on the balance sheet that can be used to attract additional funds. ACRA does not note any longer-term imbalances (the long-term liquidity shortage indicator exceeded 100 bps). The concentration of the Bank’s funding sources remains elevated, but is gradually decreasing. As of June 30, 2021, consumers accounted for more than 80% of all liabilities. At the same time, the Bank’s dependence on the largest lenders (depositors) continues to be low. As of July 1, 2021, the share of funds raised from the largest depositor amounted to 3.7%, while funds raised from the ten largest depositors stood at 14.4%. In 2021, there was an outflow of funds raised by the Bank from related parties, however, the Agency believes this event did not affect the Bank’s creditworthiness.

KEY ASSUMPTIONS

  • Maintaining the current business model within the 12 to 18-month horizon;

  • Maintaining the profitability of operations;

  • N1.2 above 9% within the 12 to 18-month horizon;

  • Maintaining a high volume of highly liquid assets.

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:

  • Significant decrease in lending to high-risk industries (construction and real estate);

  • Substantial decrease in accepted market risk;

  • Improved operating efficiency.

A negative rating action may be prompted by:

  • Deterioration in loan portfolio quality;

  • Higher loan portfolio concentration;

  • Growth in lending to high-risk industries;

  • Lower operating efficiency.

RATING COMPONENTS

Standalone creditworthiness assessment (SCA): bb-.

Adjustments: 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 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 KOSHELEV-BANK was published by ACRA for the first time on December 5, 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 JSC KOSHELEV-BANK, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of JSC KOSHELEV-BANK and the financial statements of JSC KOSHELEV-BANK drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC KOSHELEV-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 JSC KOSHELEV-BANK. No conflicts of interest were discovered in the course of credit rating assignment.


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