CJSC AK&M Rating Agency affirmed the 'A' credit rating assigned to Alef-Bank (license no. 2119) as per the national scale, with a stable outlook.
The ‘A' rating indicates that the Bank qualifies as a highly reliable borrower. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.
We appreciate the favorable shareholding structure, growing equity capital and assets, high capital quality, positive profit performance in 2012 and this year, and low funding costs as essential positive rating drivers for Alef-Bank.
The shareholding structure of Alef-Bank has not changed for a long time. EastlinkLanker PLC registered in the United Kingdom of Great Britain and Northern Ireland is the sole shareholder of Alef-Bank owning 100% of its shares.
The Bank has been increasing its equity capital for several years. In the first half of 2013, both equity and authorized capital of Alef-Bank increased by 4.4% and 35.5%, respectively, assets reached RUB 15.4 billion, with a comfortable capital quality ratio (Tier 2 to Tier 1 capital ratio).
It should be noted that the Bank's asset growth rate was far above the average percentage in Russia's banking sector, with a considerable expansion in the segment of ruble and foreign currency-denominated mortgage and consumer loans, an eloquent sustainable development indicator.
The rating of Alef-Bank is supported by its profitable operations. In 2012, the Bank generated RUB 65.3 million in net profits. In the first half of this year, the Bank's net profit totaled RUB 93.9 million surpassing the previous year's 12-month result.
The low funding costs are also contributing to the Bank's credit rating. At the end of the first half year 2013, the cost of debt was 2.69% p.a., the interest rate on customer deposits was 2.7% p.a., against the Central Bank of Russia's refinancing rate of 8.25%.
Over the period under review, the Bank's liquidity and credit risk ratios stayed within established limits meeting the applicable requirements of the Central Bank of Russia. The strong liquidity position and absence of apparent credit risk issues are positive signals for Alef-Bank's rating.
At the same time, the low capital growth rate, higher growth of interest paid vs. interest earned, unimpressive return ratios, relatively weak loan portfolio, fairly high concentration of the Bank's liabilities, as well as poor acid test and current liquidity ratios are working against the credit rating of Alef-Bank.
The Bank's equity growth rate trailed the average level in Russia's banking sector, which produces a negative impact on its rating. In 2012 the Bank's equity capital increased by 1.4% against the average percentage of 16.1%.
In absolute terms, the gap between interest earned and interest paid has widened in recent years, but interest expenses are growing faster than interest earnings in relative terms. Should this trend persist, the Bank could find it difficult to maintain its margins.
The Bank's return on equity and assets ratios in 2012 grew increased to 16.01% and 1.77%, respectively, but fell 2.2 and 0.5 percentage points short of the average values in Russia's banking sector, respectively.
The Bank cannot feel comfortable about the low share of prime loans (13.89%) and rather high percentage of doubtful and problem loans in the loan portfolio (34.9% and 9.62%, respectively), which we regard as a negative rating driver for Alef-Bank.
Another risk factor for the Bank is the high concentration of the Bank's liabilities. As of July 1, 2013, the maximum share of liabilities attributable to one group of lenders was 21.11%, while 10 principal lenders accounted for 47.24% of the total liabilities.
The Bank's weak liquidity position (below the average values in Russia's banking sector) also needs to be addressed. As of July 1, 2013, the acid test (N2) and current liquidity ratios (N3) were 45.61% and 78.61%, respectively, against the corresponding average values of 65.3% and 87.2%.
Bank name: Alef-Bank (closed joint stock company).
Alef-Bank has been operating in the market of banking services since 1992. In 2013, the Bank secured a new general banking license (no. 2119); in December 2010, it was licensed to accept deposits of precious metals. In March 2005, the Banking Supervision Committee of the Central Bank permitted the Bank to join the Deposit Insurance System (DIS). The Bank's auditor is Vneshaudit consulting LLC.
The Bank qualifies as a mid-sized Russian credit institution in terms of the amount of business. As of July 1, 2013, Alef-Bank ranked 196th in Russia in the amount of net assets (RUB 17.4 billion), 175th in equity capital (RUB 2.8 billion as of the same date).
The Bank's core business is provision of all types of banking products and services involving Russian rubles and foreign currencies, along with operations in the market of precious metals and securities.
This press release is based on the statement of assigning a credit rating to Alef-Bank.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank's credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Bank.
AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
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