Rating action

Scope Ratings UK Limited (Scope) has affirmed Finbureau’s issuer rating of B with a Stable Outlook.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business model assessment: Narrow (high). Finbureau’s business focus is on debt purchases and collection management in Georgia. The company manages non-performing loan (NPL) portfolios that it buys at material discounts from domestic banks and other financial institutions. It operates with a loan issuing entity (LIE) status and ranks among the largest debt purchase and collection companies in the country. It is also one of the most important players within the domestic loan issuing entities. While the LIE sector is both growing and becoming more diverse in terms of products and services offered, Scope expects Finbureau’s business model to remain stable, with a clear focus on NPL purchases and collections.

Operating environment assessment: Constraining (low). Georgia is a small emerging economy that still lags regional peers on several macroeconomic indicators (e.g. unemployment rate, GDP per capita, economic diversification), despite gradual improvements and reforms in recent years. The National Bank of Georgia supervises the loan issuing entity (LIE) sector, but Scope considers that regulations are less stringent than for licensed banks.

Scope arrives at an initial mapping of b- based on a combined assessment of the issuer’s operating environment and business model.

Long-term sustainability assessment (ESG factor): Developing. Finbureau continues to strengthen its digital capabilities, a topic which is considered a strategic priority for the company to improve the scalability of debt collection. Finbureau continues to implement sustainability initiatives and adapt to rising regulatory expectations. Finbureau is privately owned by two shareholders who play an important role in steering the strategy and in managing the company.

The long-term sustainability assessment leads to an adjusted rating anchor of b-.

Earnings capacity and risk exposures assessment: Supportive (+1 notch). Profitability metrics are solid and represent a rating strength. While volatile, Finbureau’s profitability tends to be well above those of other loan issuing entities (LIEs), microfinance organisations (MFOs) and commercial banks in Georgia on average. It also compares favourably with international peers in the NPL management space. Finbureau’s return on equity has consistently been above 20% since the company was founded in 2018. Following a period of rapid business growth in the past, since 2023 Finbureau is focusing on improving operational efficiency.

Financial viability management assessment: Adequate. The management of solvency and liquidity metrics is adequate. The low and declining debt leverage ratio indicates prudent financial management to avoid incurring excessive debt to finance the acquisition of assets. Liquidity has declined overall since its peak in 2021 following the acquisition of loan portfolios. This evolution is consistent with Finbureau’s growth trajectory and business model, which entails upfront investments in in portfolio acquisitions and a gradual cash generative debt collection activity. We note, however, that liquidity levels improved in 2023 and 2024 driven by a slowdown in growth, solid and stable revenues and controlled costs. Finbureau relies heavily on funding from a limited number of Georgian banks as loan issuing entities in Georgia are not authorised to collect deposits. The absence of diversified funding sources is a rating weakness. Foreign currency mismatch is limited.

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

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that the risks to the current rating are balanced.

The upside scenarios for the rating and Outlook are (individually or collectively):

1. Sustained strengthening of Finbureau’s business model accompanied by more consistent levels of profitability.
    
2. Expanding and diversifying sustainably the range of funding sources.

The downside scenarios for the rating and Outlook are (individually or collectively):

1. Pressure on funding due to material concentration risk or material deterioration in the company’s liquidity position.
    
2. Greater competition in the domestic debt collection and management sector leading to a reduction in profitability.

Environmental, social and governance (ESG) factors

Please refer to the ‘long-term sustainability assessment’ under the ‘key rating drivers’ section above for the ESG analysis.

All rating actions and rated entities

Finbureau LLC

Issuer rating: B/Stable, affirmed

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, 6 February 2024), 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 was 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 and Outlook were not amended before being issued.

Regulatory disclosures
This Credit Rating and Outlook are 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 are EU-endorsed.
Lead analyst: Alvaro Dominguez Alcalde, Analyst
Person responsible for approval of the Credit Rating: Marco Troiano, Managing Director
The Credit Rating/Outlook was first released by Scope Ratings on 7 June 2022. The Credit Rating/Outlook was last updated on 30 April 2024.

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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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