The credit rating assigned to JSCB “Moscow Industrial bank” PC (hereinafter, the Bank) is based on its satisfactory business profile, weak capital adequacy, critical risk profile, and adequate liquidity and funding positions. Other factors that contribute to the credit rating include the Bank's moderate systemic importance and a strong influence of the state on its creditworthiness.
MInBank is a medium-sized, in terms of assets and capital, bank that operates a broad nationwide branch network. Since January 2019, the Bank has been undergoing the financial rehabilitation procedure supported by Limited liability company «Fund of Banking Sector Consolidation Asset Management Company» (FBSC AMC). The Bank of Russia holds a 99.99% share in the Bank.
The state influence on the Bank's creditworthiness is assessed as strong in view of the following: 1) the Bank of Russia is exercising the shareholding and operating control over the Bank through FBSC AMC acting as a temporary manager of the Bank; 2) previously, the Bank was financially supported by the Bank of Russia through a RUB 128.7 bln recapitalization in July 2019 and a RUB 40 bln liquidity injection in Q1 2019.
The systemic importance of the Bank is assessed as medium, taking into account the limited role played by the Bank in supporting certain sectors of economy, living standards and budget revenues. On the other hand, the Bank holds strong enough positions in the retail and SME funding segments in certain regions of Russia.
In view of the above, ACRA added two notches up to the Bank's standalone creditworthiness assessment (SCA).
The satisfactory business profile assessment is determined by the average positions held by the Bank in the Russian banking system and the relatively low diversification of the Bank's assets and operating income (Herfindahl-Hirschman Index is 0.36). It is expected that the new strategy of the Bank will pursue the goal of transforming the Bank into a universal credit institution, without aggressive growth in any of the business areas. The management bodies of the Bank are being formed under the control of the Bank of Russia.
Weak capital position. Currently, the Bank's capital adequacy ratios are high (after the Bank was recapitalized, its N1.2 ratio amounted to 15.2% as of August 01, 2019). However, ACRA expects that the ratios will decline gradually with the recovery of the Bank's market positions. Furthermore, the portfolio of loans may require allocation of additional reserves, which may affect the Bank's capital adequacy. The capital adequacy assessment is also limited by the low three-year average operating performance indicators (CTI at 83% and NIM at 3.3%). On the other hand, in the mid-term, the Bank's business model will change so that the Bank may demonstrate a positive financial result and higher operating performance, which may push up, to some extent, the Bank's capital positions.
The risk profile assessment is critical, which is due to the low loan portfolio quality, as the share of potentially problem loans in the portfolio is very high: as of March 31, 2019, the share was no less than 50%, including NPL90+ of 3.6%. The loan portfolio is highly concentrated on the largest groups of borrowers (over 25% of the portfolio), most of which are associated with ex-shareholders of the Bank, and on high-risk industries (about 1.5x of the common capital are loans granted to construction and real estate companies). The increased volume of investments into non-core assets (about 17% of the common capital) and subsidiaries and affiliates (about 10% of the common capital) is also negative for the risk profile assessment. On the other hand, in the course of financial rehabilitation of the Bank, such assets will vanish gradually off the Bank's balance sheet. The credit quality of the securities portfolio (17% of assets) is high and the level of market risk is low.
The risk management function of the Bank is being transformed to reconsider risk assessment approaches.
Adequate liquidity position. ACRA assesses the Bank’s ability to fulfill its obligations on the 90-day horizon as strong, since the Bank demonstrates short-term liquidity excess under both the base case and the stress scenarios. Moreover, the securities, being encumbered insignificantly (less than 5% of the portfolio), may serve as an additional source of liquidity. ACRA also notes no significant imbalances in the longer term, with the long-term liquidity shortage indicator, LTLSI, standing at a comfortable level of 60% as of March 31, 2019. After recapitalization carried out in July 2019, LTLSI exceeded 85%. In the next 12 months, the Bank is expected to experience a liquidity outflow of RUB 40 bln (14.3% of liabilities; the amount was granted by the Bank of Russia to support the Bank's liquidity), which, according to the Bank, will be mitigated by an inflow of client funds.
Satisfactory funding profile. The Bank’s funding base includes mainly deposits held by individuals (73% of liabilities), and, consequently, there is no pronounced concentration on specific clients, with top 10 clients making up just 1.9% of liabilities.
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 negative rating action may be prompted by:
Support: state support, 2 notches up to the SCA.
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 Analyzing Relationships Between Rated Entities and the State and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. In order to determine certain factors of the standalone creditworthiness assessment, the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation was applied.
A credit rating has been assigned to JSCB “Moscow Industrial bank” PC for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The assigned credit rating is based on the data provided by JSCB “Moscow Industrial bank” PC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of JSCB “Moscow Industrial bank” PC and statements of JSCB “Moscow Industrial bank” PC composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 08, 2018. The credit rating is solicited, and JSCB “Moscow Industrial bank” PC participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by JSCB “Moscow Industrial bank” PC in its financial statements have been discovered.
ACRA provided additional services to JSCB “Moscow Industrial bank” PC. No conflicts of interest were discovered in the course of credit rating assignment.
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