ACRA affirms BB-(RU) to LLC CB «GT BANK», outlook Stable

The credit rating of LLC CB «GT BANK» (hereinafter, the Bank) is due to 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 who carries out its operations mainly in the Krasnodar Krai. The Bank’s main activities are corporate lending – in particular companies providing communication services – and raising funds from individuals. As of April 1, 2020, the Bank ranked 179th in 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 (ranked 216th in assets). At the regional level, however, the Bank holds adequate market positions and a stable base of borrowers and depositors.

ACRA assesses the Bank’s business diversification as relatively low. Operating income comes mainly from interest revenues on loans issued to clients (78% of operating income). According to ACRA’s calculations, the Herfindahl-Hirschman index stood at 0.4 as of January 1, 2020.

The Bank’s strategy provides for a growth in asset transactions with a focus on corporate lending. In terms of liability transactions, the Bank intends to develop its corporate cash settlement services in order to diversify liabilities.

ACRA assesses the Bank’s capital adequacy as strong. As of January 1, 2020, the Bank maintained its capital adequacy with reserves (N1.1 and N1.2 – 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 is tending to decline due to shrinking net interest margin and growing cost of risk. 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 at 207 bps for 2015–2019.

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 63% of the total loan portfolio) along with a high share of problem and potentially problem loans (21% of all loans, of which 15% are NPL90+). The assessment of potentially problem loans is affected by the deteriorating economic situation for the Bank's borrowers.

An additional negative impact on the risk profile is the significant amount of investments in non-core assets represented by real estate (RUB 473 mln, or 29% of equity).

The adequate funding and liquidity position. As of January 1, 2020, the Bank was able to withstand a substantial outflow of client funds both in the base case scenario (the liquidity reserve exceeds RUB 1 bln) and in the stress scenario (no shortage in liquidity). The long-term liquidity is assessed as adequate: the long-term liquidity shortage indicator (LTLSI) stood at around 80% as of January 1, 2020.

The diversification of funding sources is assessed as moderate. The Bank’s main funding source is funds from individuals (88% of liabilities as of January 1, 2020), and therefore ACRA does not note any significant concentrations of resources for individual clients (groups) (the 10 largest clients (groups) accounted for only 8.1% of liabilities).

Key assumptions

  • 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;
  • Lower volume of non-core assets.

A negative rating action may be prompted by:

  • N1.2 going below 12%;
  • Deterioration in liquidity position;
  • Increased dependence on funds from the largest depositors.

Rating components

SCA: bb-.

Adjustments: none.

Support: no.

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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of LLC CB «GT BANK» was first published by ACRA 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 the 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.

No material discrepancies between the provided information and the data officially disclosed by LLC CB «GT BANK» in its financial statements have been discovered.

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

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