Training on sovereign risk credit analysis, October 24

ACRA affirms B(RU) to JSC «BANK REALIST», outlook Developing

The credit rating of JSC «BANK REALIST» (hereinafter, the Bank) has been affirmed at B(RU) due to capital adequacy and liquidity and funding remaining adequate, a weak business profile, and a satisfactory risk profile assessment. The Developing outlook (the rating previously held the status of “Rating under revision: developing”) is due to the fact that the merger that started at the end of 2018 with «BaikalInvestBank» JSC (hereinafter, BaikalInvestBank; ACRA rating B-(RU), outlook Developing) is still not complete and ACRA is currently unable to assess the timeframe for its completion.

JSC «BANK REALIST» is a small credit institution with a base license operating primarily in Moscow. The Bank is focused on lending to non-financial companies and issuing bank guarantees. The Bank is owned by Bureaucrat LLC, whose participants Oleg Karchev, Vladislav Mangutov, and Alexey Abramov also co-own BaikalInvestBank and the MERLION group of companies.

Key rating assessment factors

The business profile assessment reflects the Bank’s weak franchise in the banking market and takes into account ACRA’s negative opinion regarding the business reputation of one of the Bank’s beneficiaries (a former shareholder of JSC “ROST BANK” as well as a number of affiliated banks with respect to which the Bank of Russia decided to activate financial rehabilitation procedures in November 2014). ACRA notes that the diversification of the Bank’s operating income remains moderate (the Herfindahl-Hirschman Index stood at 0.34x for 2018).

Adequate capital adequacy. As of July 1, 2019, the Bank’s capital adequacy ratios dropped compared to the previous year. However, they were still high (N1.2 at 12.73%, N1.0 at 13.32%), which allows the Bank to withstand an increase in the cost of risk of 300-400 bps without violating mandatory standards within the 12 to 18-month horizon. ACRA assesses the Bank’s ability to generate capital as low. 

ACRA maintains its satisfactory risk profile assessment of the Bank. The Bank’s loan portfolio is highly concentrated on borrowers (as of July 1, 2019, the share of the top 10 borrowers was 42%) and has a moderate share of problem loans, which increased from 8.5% to 9% between June 1, 2018, and July 1, 2019. The quality of the top principals under guarantees issued and the securities portfolio is assessed as adequate.

Adequate liquidity and funding. As of mid-2019, the Bank had a surplus of short-term liquidity in ACRA’s base case (1.6%) and stress scenarios. The long-term liquidity shortage indicator (LTLSI) stands at around 90%. Concentration on funds from the largest creditors applies pressure on the Bank’s liquidity and funding (as of July 1, 2019, the share of the top 10 creditors was 46%).

Key assumptions

  • Completion of the merger with BaikalInvestBank.

Potential outlook or rating change factors

The Developing outlook assumes with equal probability either an upgrade or a downgrade of the rating within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Decrease in the concentration on the largest groups of borrowers.

A negative rating action may be prompted by:

  • Decrease in capital adequacy;
  • Decrease in loan portfolio quality;
  • Decrease in liquidity and funding.

Rating components

Standalone creditworthiness assessment (SCA): b.

Adjustments: none.

Support: none.

Issue ratings

The credit rating was 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 «BANK REALIST» was published by ACRA for the first time on July 6, 2018. 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 JSC «BANK REALIST», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of JSC «BANK REALIST» and statements of JSC «BANK REALIST» composed in compliance with the Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and JSC «BANK REALIST» participated in its assignment.

No material discrepancies between the provided data and the data officially disclosed by JSC «BANK REALIST» in its financial statements have been discovered.

ACRA provided no additional services to JSC «BANK REALIST». No conflicts of interest were discovered in the course of credit rating assignment.

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