Rating action

Scope Ratings UK Limited (Scope) has today affirmed its B/Stable issuer rating on Finbureau LLC.

Rating rationale

The issuer rating on Finbureau reflects the following credit considerations:

• Finbureau’s business model focuses on debt purchases and collection management in Georgia. It operates with a loan-issuing entity status and ranks among the largest debt purchase and collection companies in the country.
   
• The company’s profitability metrics materially outperformed the levels of other loan-issuing entities, microfinance organisations and commercial banks in Georgia in average. However, its profitability metrics have been decreasing in recent years due to higher operating costs, in particular higher collection costs, only partially mitigated by higher revenue following strong volume growth. Return on equity has remained above 24% since 2018.
   
• Solvency and liquidity continue to be adequate. The still low leverage ratio indicates prudent financial management to avoid incurring excessive debt to finance the acquisition of assets. Liquidity has declined materially in recent months following the acquisition of large loan portfolios. This evolution is inherent to the company’s business model with periodic investments in portfolio acquisition and a gradually replenished liquidity position thanks to a cash generative debt collection activity. Scope considers the lack of minimum regulatory capital and liquidity ratios a material risk for the sector. In general, the National Bank of Georgia does not supervise loan-issuing entities as closely as other financial institutions.
   
• As loan-issuing entities in Georgia are not authorised to collect deposits, Finbureau relies heavily on funding from large Georgian banks, which constitutes a potential funding risk. Scope views positively the alignment of interest with the banks that are selling non-performing loans and also provide funding, albeit not in a matched manner. Foreign currency mismatch is limited, with 3% of total financial liabilities in US dollars compared to 3% of total financial assets as of December 2022.
   
• Finbureau continues to improve and implement initiatives regarding the environment, social and governance factors as well as the digital transition (ESG factor). Finbureau is privately owned by two shareholders who play an important role in steering the strategy and in managing the company. Enhancing digital capabilities is a priority for the company to improve the scalability of debt collection.

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 will continue to generate high returns from debt collection and rebuild its liquidity position in the coming months.

What could move the rating up:

• Sustained strengthening of Finbureau’s market position accompanied by more consistent levels of profitability
   
• Further growing the business through 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, reducing profitability
   
• Pressure on profitability from increased funding costs
   
• Material deterioration in the company’s liquidity position leading to difficulties in meeting its financial obligations

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 Outlook, (Financial Institutions Rating Methodology, 7 February 2023), 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 Rating if the Credit Rating 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 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 Outlook and the principal grounds on which the Credit Rating and Outlook are based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This Credit Rating and 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 Outlook is EU-endorsed.
Lead analyst: Alvaro Dominguez Alcalde, Analyst
Person responsible for approval of the Credit Rating: Nicolas Hardy, 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/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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