ACRA upgrates «BaikalInvestBank» JSC to B+(RU), changes outlook to Stable

The upgrade to «BaikalInvestBank» JSC (hereinafter, the Bank) is based on an improved business profile assessment after the Bank’s merger with JSC “BANK REALIST,” as well as increased capital adequacy ratios. The Bank’s credit rating is based on a weak business profile combined with strong capital adequacy, a neutral risk profile assessment, and satisfactory liquidity and funding assessments.

The Bank is a small credit institution that specializes in providing loans to enterprises in various industries (including gold mining companies), crediting the purchase of commercial vehicles and special equipment, issuing bank guarantees, as well as operations for the purchase and sale of gold and currency exchange operations. The Bank’s ranking among Russian banks significantly improved after its merger in May 2020 with JSC “BANK REALIST.” As of June 1, 2020, the Bank was ranked 134th in equity and 156th in assets (155th and 171st as of January 1, 2020, respectively). The Bank’s controlling shareholders are Oleg Karchev, Vladislav Mangutov, and Alexey Abramov, who also jointly own the MERLION group of companies and a number of other assets.

Key rating assessment factors

The weak business profile assessment reflects the Bank’s relatively weak franchise. The Bank does not have a strong competitive position in the Russian banking market, but it has a stable base of borrowers among small gold mining companies. ACRA notes the high diversification of the Bank’s operating income. At the end of the five months of 2020, the Herfindahl-Hirschman Index was 0.26. ACRA improved the Bank’s ownership structure assessment and the business reputation of one of the Bank’s beneficiaries after the Bank of Russia approved the merger transaction with JSC “BANK REALIST.” This circumstance, as well as the Bank’s consolidation, has justified an increase in the business profile assessment by one notch.

Strong loss absorption cushion. As of June 1, 2020, the Bank’s capital adequacy ratios were high (N1.1 at 15.3%, N1.2 at 15.3%, N1.0 at 16.2%). The current level of loss absorption allows the Bank to withstand an increase in the cost of risk of more than 500 bps without violating mandatory standards. ACRA assesses the Bank’s ability to generate capital as average, with the averaged capital generation ratio standing at 98 bps for 2015-2019.

Neutral risk profile assessment. The Bank’s loan portfolio is characterized by a moderate share of problem and non-performing loans (as of May 30, 2020, 11.4% of the loan portfolio was Stage-3 loans) and an acceptable concentration on the ten largest groups of borrowers (32%). The quality of core risk management is assessed as satisfactory compared to competing banks. The quality of the largest principals under issued guarantees is assessed as adequate.

Satisfactory liquidity position. At the end of May 2020, the short-term liquidity shortage indicator in ACRA’s stress scenario reached 10% of the Bank’s total liabilities. At the same time, ACRA took into account the seasonal nature of the activities of gold mining companies, which represent a significant part of the Bank’s clients. The repayment of loans expected in the second half of the year will significantly increase short-term liquidity indicators. Long-term liquidity is assessed as adequate, with the long-term liquidity shortage indicator at about 72% as of May 30, 2020.

The satisfactory assessment of the funding structure is based on acceptable diversification by sources (as of May 30, 2020, individuals and entrepreneurs accounted for 56% of the Bank’s liabilities), as well as acceptable concentration on the funds of the largest creditors (as of June 30, 2020, the largest creditor accounted for 5.4% of liabilities, while the ten largest accounted for 22.3%).

Key assumptions

  • Maintaining the current business model;
  • N1.1 and N1.2 above 9% within the 12 to 18-month horizon;
  • Cost of risk within 3-3.5%;
  • NIM no lower than 5%;
  • Maintaining the current funding structure.

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:

  • Decrease in problem and non-performing loans;
  • Strengthened competitive positions in key segments;
  • Decreased concentration of funding sources.

A negative rating action may be prompted by:

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

Rating components

SCA: b+.

Adjustments: none.

Support: none.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

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 assigned to «BaikalInvestBank» JSC was published by ACRA for the first time on November 30, 2017. 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 «BaikalInvestBank» JSC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated statements of «BaikalInvestBank» JSC and statements of «BaikalInvestBank» JSC composed in compliance with the Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit rating is solicited, and «BaikalInvestBank» JSC participated in its assignment.

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

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

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