Press Releases / 05.12.2017

Press Release as of 05.12.2017

JSC Agency for Supporting Small and Medium-sized Businesses, regional microfinance institution of Leningrad region

AK&M Rating Agency has affirmed the national scale guarantee institution rating of JSC Agency for Supporting Small and Medium-sized Businesses, regional microfinance institution of Leningrad region, at 'A+'. The outlook is stable.

The 'A+' rating indicates that JSC Agency for Supporting Small and Medium-sized Businesses, regional microfinance institution of Leningrad region (hereinafter also abbreviated as JSC ASSMB or the Fund) is a highly reliable guarantee institution. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Guarantee Institutions rev. February 25, 2016.

JSC ASSMB was established in 2003 pursuant to a decree of the Governor of Leningrad region with the aim of assisting in increasing the number of creditworthy and financially viable SME businesses in the region by creating favorable conditions for access to credit facilities of banks and leasing companies.

The guarantee institution's rating is supported by the Fund's core business expansion, growing earnings from sureties, lower responsibility for SME lending, acceptable capital multiple for existing sureties, highly reliable placement of guarantee capital in deposits with credit institutions, optimal structure of existing sureties in terms of maturity, good efficiency of guarantee activities.

For the 9-month period in 2017, the total amount of the sureties provided by JSC ASSMB to small and medium-sized businesses increased by RUB 116.5 million (86.0%). For the 12-month period ending on October 1, 2017, the portfolio of existing loans increased by RUB 475.9 million. Therefore, in the period under review, the Fund has obviously expanded its business and almost doubled earnings from the core guarantee activity.

The responsibility of JSC ASSMB has been low and on a steady downward trend in the last three years. The responsibility level was 40.8% on October 1, 2017, which is 3.7 p.p. below the 2015 level, the maximum acceptable percentage being 70%. The low responsibility on loans provided to small and medium-sized businesses indicates that the initial risks assumed by the Fund have been notably mitigated, which our analysts appreciate as a positive rating driver.

Throughout the period under review, we note an increase in the guarantee capital multiple, an evidence that the Fund's activity has gained momentum. The capital multiple across the surety portfolio reached a high level of 171.2% on October 1, 2017, with a considerable potential for further efficiency growth.

Another positive rating driver is the high quality of guarantee coverage for the liabilities arising from the sureties provide by the Fund. The guarantee capital is placed on deposit accounts with top-level  Russian banks possessing high credit ratings. Given the reliability of these financial institutions, even partial loss of the Fund's guarantee capital is nearly impossible.

As of October 1, 2017, the focus in the surety portfolio shifted towards the issue of sureties with short maturity periods. In particular, active sureties maturing in two years accounted for more than 79% of the whole portfolio (42.2% of them maturing in 1 year or earlier). This reduces risks of the need for the Fund to discharge payment obligations under sureties in case of improper debt servicing and SME businesses' failure to repay their loans.

The efficiency of JSC ASSMB's guarantee activities in the period under review exceeded 95%, which also contributes positively to the Fund's rating. As of October 1, 2017, the efficiency ratio was 95.9%.

At the same time, the Fund's rating is constrained by elevated concentration of off-balance sheet risks on larger sureties, growing amount of payment obligations fulfilled by the Fund under surety agreements and poor efficiency of recovery through recourse procedures.

As of October 1, 2017, the percentage of active loans exceeding RUB 5 million provided on security of the Fund reached almost 84% of the loan portfolio increasing by 3.1 p.p. year-on-year. 49.5% of the loans exceed RUB 20 million, while the average amount of surety provided since the start of 2017 has reached RUB 11.0 million (RUB 3.6 million above the 2016 level). The growing concentration on larger sureties increases risks of dependence of the guarantee institution's portfolio on the financial standing of certain SME businesses, which is a constraining factor.

The higher amount of payment obligations discharged by the Fund under surety agreements combined with underperformance in recovery through recourse procedures also exerts pressure on the rating. For the 9-month period in 2017, the Fund effected two payments for a total amount of RUB 16.3 million (RUB 73.3 million for the whole period since the commencement of operation). As of the current date, JSC ASSMB recovered RUB 4.1 million through applicable recourse procedures, including RUB 44.4 thousand in 2017. Despite an improvement in the recovery through recourse procedures as compared with 2015-2016, the ratio of recovered funds to payment obligations discharged by the Fund was a mere 5.6% on October 1, 2017, an evidence of poor efficiency of recovery through recourse proceedings of Fund, which prevents JSC ASSMB from fully recovering  losses related to the payment obligations discharged by it.

Full name: JSC Agency for Supporting Small and Medium-sized Businesses, regional microfinance institution of Leningrad region

Short name: JSC ASSMB

JSC ASSMB was registered on August 14, 2003. Its sole founder is Leningrad region, a subject of the Russian Federation, represented by the Leningrad regional committee for the management of state-owned property. Over its existence, the guarantee institution has provided 630 sureties amounting to RUB 1.82 billion, which enabled SME businesses to borrow RUB 4.45 billion from banks. As of October 1, 2017, the Fund's capitalization was RUB 297.3 million, the surety portfolio amounted to RUB 509.1 million.

AK&M Rating Agency assigned a reliability rating to JSC ASSMB for the first time on December 18, 2012. The last rating action was taken on December 13, 2016. All rating action announcements are available on the website.

The rating is valid until December 2018. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the guarantee institution's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Fund. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

This press release is based on the Statement of assignment of a credit rating to JSC ASSMB and the Credit Rating Methodology for Guarantee Organizations rev. February 25, 2016.

The ranking, along with any information and conclusions provided in this report, only conveys our opinion and shall not be construed as a recommendation to lend money resources to the companies.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18.