CJSC AK&M Rating Agency upgraded the microfinance institution's credit rating of the Small Business Fund of Krasnokamensk City on the national scale to B++, with a stable outlook. Earlier, the Small Business Fund of Krasnokamensk City was rated 'B+', the outlook being stable.
The 'B+' rating indicates that the Small Business Fund of Krasnokamensk City qualifies as a sufficiently reliable borrower (the highest tier of the 'B' rating category). Risk of a delay in meeting liabilities is moderate, restructuring risk for a loan / part of a loan is insignificant.
The Small Business Fund of Krasnokamensk City's rating is mainly supported by its high equity capital adequacy, increasingly efficient microfinance business, and moderate amount of risk assumed.
As of September 30, 2013, the Fund's earmarkings totaled RUB 62,192 thousand. Equity capital adequacy was next to 100%, the lower limit being 15%. The Small Business Fund of Krasnokamensk City has never and is not borrowing capital. The Fund's accounts payable did not exceed 0.1% of its total liabilities on specific reporting dates.
We regard the impressive microfinance business expansion and higher efficiency as a powerful positive rating driver for the Fund. For 9 months 2013, the loan portfolio grew more than twice reaching RUB 26,835 thousand. The number of contracts in force also doubled to 55 against 28 at the start of the year. In addition, the Fund's loan interest earnings for the same period increased by more than 100% to RUB 1,186 thousand (against RUB 575 thousand for 12 months 2012). The Fund's total income (including deposit interest) to expense increased from 2.60 to 3.31. The operational efficiency of the microfinance institution stays at a comfortable level.
The moderately high quality of the microloan portfolio also contributes to the Fund's rating. As of September 30, 2013, the average outstanding loan balance was less than RUB 500 thousand, indicating a comfortably low credit exposure. In particular, AK&M Rating Agency's analysts estimate the risk of excessive losses (write-offs exceeding 5% of the current portfolio) at about 12%, which corresponds to the rating assigned.
At the same time, the Fund's rather limited operational experience in the microfinance segment including the track record of loan loss recovery (exercising its security interest, among other things) is working against its rating. As of September 30, 2013, the Fund provided 84 loans, with only 29 of them fully paid back, and a borrower defaulting on a RUB 1 million loan contract. Now that the borrower has been adjudicated bankrupt and the standard bankruptcy proceedings are over, even the partial recovery of the potential losses is hardly possible.
The operational sustainability and investment efficiency levels are relatively low and not meeting the regulatory requirements, which exerts certain pressure on the Fund's rating.
Business name: Small Business Fund of Krasnokamensk City
The microfinance institution was founded in 2011, registration entry 6120775001038 was made in the state register of microfinance institutions on January 24, 2012.
The fund is a nonprofit organization whose mission is to encourage and support small businesses in Krasnokamensk City by providing microfinance services. The fund was established by the authorities of Krasnokamensk City and the Small Business Fund of Zabaykalsky Krai. As of September 30, 2013 the Fund's microloan portfolio under 55 contracts was RUB 26,835 thousand, the amount of targeted financing (earmarkings) reaching RUB 62,192 thousand.
This press release is based on the statement of assigning a credit rating to the Small Business Fund of Krasnokamensk City.
The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Fund's reliability and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Fund.
CJSC 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.
CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).
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