ACRA affirms B+(RU) to MARITIME BANK, outlook Stable

The credit rating of MARITIME BANK (hereinafter, MARITIME BANK, or the Bank) is based on the Bank’s weak market position, satisfactory capital adequacy, weak risk profile, adequate liquidity and funding position, and support from the key shareholder.

MARITIME BANK, located in Moscow, is a small bank in terms of assets, and specializes in corporate client services, in particular clients in the maritime and river transportation industries. As of April 1, 2021, the Bank ranked 170th in terms of capital among Russian banks. The Bank’s ownership structure is transparent. The Bank’s main beneficiary is Sergey Generalov (99.84%), who is also a member of its board of directors and the president of Industrial Investors Group.

Key rating assessment factors

The relatively low business profile assessment is based on the Bank’s weak franchise in the Russian banking market. Diversification of the Bank’s operating income grew in 2020 due to a lower share of interest income from loans. ACRA has made a negative adjustment due to the possible increase in the share of this type of income in total revenues due to growth of the loan portfolio and interest rates, as well as taking into account the possibility of other types of income declining, and therefore the assessment of operating income diversification remains low. At the same time, the Agency notes an increase in call account balances and gradual growth of commission and other income due to the development of transactional and digital lines of business, as provided for by the Bank’s strategy. The strengthening of these trends in the medium term may lead to a steady increase in diversification of operating income.

ACRA assesses the Bank’s capital adequacy as satisfactory. As of January 1, 2021, MARITIME BANK maintains ample capital adequacy ratios (N1.1 and N1.2 at 10.0%, N1.0 at 11.4%), which ensures acceptable credit risk absorption capacity over the next 12–18 months. ACRA’s stress test shows that the Bank is capable of withstanding an increase in the cost of risk (ranging from 300–500 bps) without breaching the N1.2 ratio.

In 2016–2020, the Bank’s ability to generate capital remained low. The averaged capital generation ratio (ACGR) is negative according to ACRA’s methodology. At the same time, the Agency notes that the Bank’s operations have been profitable over the past four years. If the Bank does not record a significant loss this year, then the ACGR for 2017–2021 will exceed 50 bps, which may justify increasing the Bank’s capital adequacy assessment and upgrading its rating.

The Bank’s operational efficiency remains moderate. The cost-to-income ratio (CTI) averaged 66.9% over the last three years while the net interest margin (NIM) was 5.9%, compared to 62.3% and 6.9%, respectively, a year before.

The Agency maintains its low risk profile assessment. The total volume of NPL90+ amounted to 10.4% as of January 1, 2021 (compared to 7.9% as of January 1, 2020). However, the coverage of these loans by provisions is close to 100%. The Agency notes that the Bank maintains an acceptable concentration on the ten largest groups of borrowers, which amounted to 35.8% as of January 1, 2021.

The credit quality of assets outside the loan portfolio is assessed as satisfactory. However, ACRA notes the Bank’s large volume of non-core assets in the form of investment real estate (more than 50% of the Bank’s common equity as of January 1, 2021), which puts pressure on the Bank’s overall risk profile assessment.

In addition, in 2020–2021 the volume of accepted market risk has grown in relation to common equity, which is also taken into account when assessing the factor.

Adequate liquidity and funding assessment. The Bank is capable of withstanding a substantial outflow of client funds in both ACRA’s base case and stress scenarios. Imbalances over longer periods are moderate (the long-term liquidity shortage indicator, LTLSI, was 66% as of January 1, 2021).

ACRA assesses the diversification of the Bank’s funding sources as acceptable. The Agency notes that funds of the ten largest groups of creditors grew to 38.2% of the Bank’s total liabilities in 2020, however this may growth may be a one-time event. At the same time, ACRA notes that the share of funds from corporations and individuals in the Bank’s resource base are comparable (52% and 31% of total balance sheet liabilities, respectively, as of January 1, 2021).

ACRA has also made an upward adjustment to the Bank’s stand-alone creditworthiness assessment (SCA) given the likelihood of shareholder support. The adjustment takes into account the accumulated history of the Bank’s support from its key beneficiary and/or its companies. Financial support from the Bank’s owner has included gratuitous financing (RUB 200 mln in 2016–2017), conversion of subordinated loans (more than RUB 1.3 bln), and acquiring non-core assets (RUB 500 mln in 2017) and problem loans (RUB 400 mln in 2018) from the Bank’s balance sheet. In accordance with the Methodology for Analyzing Rated Entities Associated with the State or a Group, the Bank’s credit rating has been increased by one notch relative to its SCA.

Key assumptions

  • Maintaining the current strategy and business model within the 12 to 18-month horizon;
  • Maintaining a high quality securities portfolio;
  • Maintaining problem loans at no lower than 10% of the total loan portfolio;
  • Maintaining N1.2 at above 9% within the 12 to 18-month horizon.

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:

  • Strengthening of market position;
  • Improved capital generation ability;
  • Reduction of problem loans;
  • Reduction of non-core assets.

A negative rating action may be prompted by:

  • Significant growth of problem loans;
  • Growth of market risk relative to common equity;
  • N1.2 declining below 9%;
  • Lower operational efficiency;
  • Continued high dependence on funds of the ten largest creditors/depositors;
  • Deterioration of liquidity position.

Rating components

SCA: b.

Adjustments: +1 notch taking into account support from the shareholder.

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, the Methodology for Analyzing Rated Entities Associated with the State or a Group, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit rating of MARITIME BANK was published by ACRA for the first time on June 1, 2018. 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 MARITIME BANK, information from publicly available sources, and ACRA’s own databases. The rating analysis was performed using the RAS financial statements of MARITIME BANK and the financial statements of MARITIME BANK drawn up in compliance with Bank of Russia Ordinance No. 4927-U dated October 8, 2018. The credit rating is solicited, and MARITIME 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 MARITIME BANK. No conflicts of interest were discovered in the course of credit rating assignment.

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