Rating action

Scope Ratings UK Ltd (Scope) has today assigned a first-time issuer rating of B to FinBureau LLC with a Stable Outlook.

 Rating rationale 

The B issuer rating on FinBureau reflects the following credit rating considerations:

• FinBureau ranks among the largest debt purchase and collection companies in Georgia as well as one of the most important domestic loan issuing entities (LIEs) focused purely on unsecured loans. All the company’s assets are domestic.
   
• The company’s profitability metrics materially exceed the levels of other LIEs, microfinance organisations and commercial banks in Georgia. In 2021, profitability indicators worsened, driven by materially higher collection costs which could not be offset by increasing revenues. Nonetheless, due to strong volume growth and tight management of employee expenses, the return on average equity has remained above 28% since 2018.
   
• Solvency and liquidity metrics continue to be adequate. Although increasing, the company’s equity multiplier ratio is low as of year-end 2021. This indicates prudent financial leverage, with the company not incurring excessive debt to finance assets. Nevertheless, LIEs are not as closely supervised as other financial institutions in the country. Scope considers the lack of minimum regulatory capital and liquidity ratios a material risk for the sector.
   
• As LIEs in Georgia are not authorised to collect deposits, FinBureau relies heavily on funding from large Georgian banks, which constitutes a potential funding risk. Foreign currency mismatch is limited, with 9% of total financial liabilities in US dollars compared to 6% of total financial assets as of September 2021.
   
• FinBureau continues to embrace changes in the areas of environmental, social and governance as well as digital transition (ESG factor), with developments being work in progress. Improving digital capabilities is a priority for the company.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s view that FinBureau’s credit profile will remain resilient in 2022, despite the economic uncertainty stemming from geopolitical tensions in Eastern Europe. Scope further expects the company’s earnings to be sufficient to absorb potential credit losses.

What could move the rating up:

• Sustained strengthening of market position accompanied by more consistent levels of profitability.
   
• Further growing the business with greater product diversification.
   
• Expanding and diversifying the range of funding sources, providing the company with a more stable funding profile.

What could move the rating down:

• Greater competition in the debt collection and management market which reduces profitability.
   
• Pressure on profitability from increased funding costs. The country’s larization plan has resulted in an increasing reliance on domestic currency funding provided by commercial banks, which is typically tied to the National Bank of Georgia’s main refinancing rate.
   
• Material deterioration in the company’s liquidity position leading to difficulties in meeting its financial obligations.
   
• Economic spillover from the ongoing conflict in Eastern Europe which leads to a material deterioration in the company’s operating environment. A worsening of the conflict could halt the domestic economic rebound which followed the lifting of Covid-19 measures.

Overview of FinBureau’s rating construct

Operating environment: constraining

Business model: narrow

Initial mapping refinement: n/a

Initial mapping: b-/b

Long-term sustainability: developing

Adjusted anchor: b-

Earnings capacity and risk exposures: supportive

Financial viability management: adequate

Additional rating factors: neutral

Standalone assessment: b

External support: not applicable

Issuer rating: B

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this Credit Rating and/or Outlook, (Financial Institutions Rating Methodology, 28 January 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/uk-regulation. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, the Rated Entities’ Related Third Parties and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and/or Outlook and the principal grounds on which the Credit Rating and/or Outlook are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This Credit Rating and/or Outlook is issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Rating and/or Outlook is EU-endorsed.
Lead analyst: Alvaro Dominguez Alcalde, Analyst
Person responsible for approval of the Credit Rating: Pauline Lambert, Executive Director
The Credit Rating/Outlook was first released by Scope Ratings on 7 June 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/UK Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.