Rating action

Scope Ratings UK Limited (Scope) has today affirmed Georgia-based Finbureau LLC (Finbureau) 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). The issuer rating is anchored by the Narrow (High) business model assessment. Finbureau is one of the most important and largest domestic Loan Issuing Entities (LIE), accounting for approx. 11% of the LIE sector total assets as of March 2025. The company has a total balance sheet of approx. GEL 66m (EUR 21m) and operates exclusively in Georgia.

Finbureau’s business focus is on debt purchases and collection management in Georgia. The company manages and works out non-performing loan (NPL) portfolios that it buys at material discounts from domestic banks and other financial institutions. While Finbureau’s loan market share in the Georgian financial sector is marginal, Scope acknowledges its prominent position in the niche market of debt purchase and collection as a strength.

The lack of business diversification is a factor constraining the business model assessment. Given Finbureau’s clear focus and dominant position in the market of NPL purchases and collections, Scope does not expect the diversification profile of Finbureau to materially change in the medium-term.

Operating environment assessment: Constraining (Low). Georgia is Finbureau’s sole market. Georgia is a small emerging economy that has seen gradual improvements and reforms in recent years but still lags regional peers on several macroeconomic indicators (e.g. unemployment rate, GDP per capita, economic diversification). Current social tensions, stemming from a political crisis and contested election, raise economic uncertainty and remain an area of attention. Scope’s operating environment assessment for banks in Georgia is Constraining (High), but we adjust it downwards to Constraining (Low) for LIEs as we deem the applicable regulatory and supervisory framework to be significantly less stringent compared to banks.

LIEs accounted for lower than 1% of the assets within the Georgian domestic financial sector, mainly providing consumer, lombard, trade and service and online loans.

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. The assessment reflects Scope’s view that the issuer is embracing changes to ensure the long-term sustainability of its business model. Progress made may be tangible but does not warrant further credit differentiation.

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 is privately owned by two shareholders who play an important role in steering the strategy and in managing the company. Finbureau continues to implement sustainability initiatives and adapt to rising regulatory expectations.

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

Earnings capacity and risk exposures assessment: Supportive (+1 notch). The assessment reflects Scope’s view that earnings capacity is stable through economic cycles and provides a strong buffer against losses. Risks are well managed and are highly unlikely to lead to losses capable of undermining the issuer’s viability.

The supportive assessment reflects the company’s strong profitability. Strong debt collection revenues and adequate cost containment drive Finbureau’s bottom line. While volatile, Finbureau’s profitability is on average well above of those of other loan issuing entities (LIEs), microfinance organisations (MFOs) and commercial banks in Georgia. 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 Finbureau is focusing on improving operational efficiency. Scope expects profitability to remain strong in the coming quarters, supported by new loan portfolio purchases which will be supportive to further revenue growth.

Financial viability management assessment: Adequate. The assessment reflects Scope’s view that financial viability management provides some buffer and, under a base case scenario, could not imminently push any metric close to minimum requirements or jeopardise the issuer’s financial viability.

Finbureau’s management of solvency and liquidity metrics is adequate. The low and declining debt leverage ratio indicates prudent financial management and evolution of liquidity metrics reflect the impact of loan portfolio acquisitions. This evolution is consistent with Finbureau’s growth trajectory and business model, which entails upfront investments in portfolio acquisitions and a gradual cash generative debt collection activity. We note that liquidity levels have decreased somewhat reflecting expected lower work out proceeds during the first months of the year coupled with higher employee and other operating expenses. Scope expects liquidity to improve in coming quarters driven by higher cash collections.

Finbureau funding is concentrated with a limited number of Georgian banks also reflecting that LIEs in Georgia are not authorised to collect deposits. The lack 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, could lead to a more positive assessment of the business model.
    
2. Expanding and diversifying sustainably the range of funding sources, could result in a positive adjustment of the financial viability management assessment.

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, could result in a downgrade of the financial viability management assessment.
    
2. Greater competition in the domestic debt collection sector leading to a reduction in profitability, could lead to a lower earnings capacity and risk exposures assessment.
    
3. A significant deterioration in the operating environment for Georgian LIEs which could result from prolonged political uncertainty and tensions, could lead to a negative adjustment of the operating environment assessment.

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, 10 January 2025), 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
The 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, Senior Analyst
Person responsible for approval of the Credit Rating: Karlo Fuchs, Managing Director
The Credit Rating/Outlook was first released by Scope Ratings on 7 June 2022. The Credit Rating/Outlook was last updated on 22 November 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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