Press Releases / 24.08.2016
Press Release as of 24.08.2016
State Fund of the Kemerovo Region for Business Support (SFKRBS)
AK&M Rating Agency has affirmed the national scale guarantee institution credit rating of the microfinance organization "The State Fund of the Kemerovo Region for Business Support" at 'A', revising the sub-level from 2 to 3.
The 'A' rating indicates that the microfinance organization "The State Fund of the Kemerovo Region for Business Support" qualifies as a highly reliable guarantee institution (fund). The risk of a failure to meet obligations in time is low.
The key positive rating drivers for the guarantee institution include an acceptable guarantee capital multiple, high quality of claim settlement activities, an admissible loss ratio on the long-term horizon; high reliability of the guarantee coverage, an acceptable level of credit risk attributable to the current surety portfolio.
In recent years, the Fund's surety portfolio has always stayed above its guarantee capital. As of July 1, 2016, the guarantee capital multiple was 114%, exceeding the average market level (108%, according to AK&M Rating Agency's 2015 Ranking of Guarantee Funds), an evidence of the Fund's acceptable efficiency of using budgetary resources for providing guarantee support to small and medium-sized businesses in the region.
One of the positive rating drivers is the Fund's excellent claim settlement performance. Since the beginning of 2011, with its lawyers' assistance, the Fund has reasonably rejected 7 claims of credit institutions for the fulfillment of compensation payment obligations related to the sureties, which has saved approximately RUB 14.6 million in budgetary resources. For same period, the guarantee recovered ca. RUB 6.9 million through applicable recourse procedures, which is almost 13.5% of the previously paid compensations. This may be viewed as fairly strong performance given the heavy discounts applying to troubled assets which financial institutions try to dispose of. As of July 1, 2016, the ratio of balanced loss (compensation payments minus recovery through recourse procedures) to the total amount of sureties provided was 3.0%, the average market percentage being ca. 5%.
The Fund's assets (guarantee capital) are deposited on accounts with top Russian banks (Sberbank of Russia, VTB Bank (PJSC), Promsvyazbank PJSC. Given the high creditworthiness (rated at least equal to Russia's sovereign rating) and stature of these financial institutions, even partial loss of the Fund's guarantee capital is nearly impossible.
The moderately low level credit risk primarily results from acceptable frequency of registered defaults of the guarantee institution's principals. AK&M Rating Agency's statistic simulation of possible losses from insolvency of the guarantee institution's clients shows that such losses would not exceed RUB 30 million, with a confidential probability of 90%. This amount is commensurate with the guarantee institution's reserve fund and cannot therefore cause a heavy loss of targeted financing resources.
The lower sub-level primarily reflects a deterioration in the key performance indicators of the guarantee institution. The minor reduction in the number of the Fund's current sureties (-3.6%) in 2014 was followed by a much heavier decline (-18%) in 2015. The portfolio of surety contracts further decreased by 11% in the first half of this year. The contraction in the amount of obligations is almost equally dramatic (-2.6%; -8.3%; -13.7%).
The Fund's rating position is also weakened by a substantial increase in the number and amount of off-balance sheet liabilities discharged by the guarantee institution. In the first half of 2016 alone, the Fund satisfied 6 claims of credit institutions for a total amount of almost RUB 24 million (as of January 1, 2016, the total amount paid in discharge of obligations under 11 sureties reached approximately RUB 27 million). As a result, the amount of recourse claims as a component of the Fund's debt receivable reached RUB 37 million. The dramatic increase in the loss ratio on the short-term horizon poses a notable capitalization decline risk.
The guarantee institution's rating is additionally constrained by the high concentration ("lumpiness") of the surety portfolio in terms of industries and clients. As of July 1, 2016, the share of loans secured by the Fund's sureties and provided to SME businesses operating in the wholesale and retail trade segment was approximately 65%. This concentration does not meet the regulatory authority's (the Ministry of Economic Development) recommendations and is notably different from the relative share of the retail segment in the regional loan portfolio (ca. 48% of the financial resources provided, taking into account repairs of automatic telephone stations, motorbikes, household goods and personal appliances). The excessive concentration of major borrowers in the portfolio where the top 5 out of more than 100 principals account for about 40% of the current credit guarantees (in terms of outstanding obligations) also poses certain credit risks.
The microfinance organization "The State Fund of the Kemerovo Region for Business Support" was registered on June 07, 1996. Over the period of existence (as of July 1, 2016), the guarantee institution has undertaken 723 surety commitments for a total amount of RUB 1,449 million. As of the last reporting date, the guarantee fund's capitalization was RUB 343.6 million. According to AK&M Rating Agency's 2015 Ranking of Guarantee Funds, the guarantee fund of Kemerovo region took the 30th position among the 50 funds ranked.
This press release is based on the Statement of assignment of a guarantee institution rating to the microfinance organization "The State Fund of the Kemerovo Region for Business Support." The rating assignment was based on the applicable Guarantee Institution Rating Methodology (AK&M Rating Agency, 2015).
AK&M Rating Agency assigned a credit rating to the guarantee fund of Kemerovo region for the first time on July 14, 2014. The last rating action in respect of the Fund was taken on August 11, 2015. All rating action announcements are available on the www.akmrating.ru website.
The rating is valid until August 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the guarantee institution's rating are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the Rated Entity. 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.
The guarantee institution's rating, along with any information and conclusions provided in this press release, only conveys our opinion on the guarantee fund of Kemerovo region's ability to perform its obligations in relation to its sureties on time and in full, while maintaining sufficient financial stability to provide effective support to small and medium-sized businesses in the region..
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
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