Credit Rating of Invescore NBFI JSC.

Rationale/ Key rating drivers

Distinguished Non-Banking Financial Institution: “Invescore NBFI” JSC ranks first within its sector in terms of total assets and revenue. Notably, it contributes to 10% of the Non-Banking Financial Institution (NBFI) sector’s size and is included in the top five companies when evaluated by the corporate governance code formulated by the FRC. Also, the company is the first within its sector in securing long-term financing from esteemed international organizations such as the European Bank for Reconstruction and Development and the Asian Development Bank highlighting the company’s good governance, innnovative approaches, and overall satisfactory performance in implementing development projects.

Balanced growth in the loan portfolio with low NPL ratio: “Invescore NBFI” JSC has established a strong operational presence since its inception in 2016. Over the past five years, the company has demonstrated high growth, with an average annual increase of 80% in total assets and 74.3% increase in the total loan portfolio. Currently, “Invescore NBFI” JSC has ranked first in terms of total assets and revenue, representing approximately 10% of the entire non-banking financial institution sector. Furthermore, as of the second half of 2023, the non-performing loan ratio in relation to the total loan portfolio stands at 4.5%, marking a 1.7-fold improvement compared to the industry average.

Continued profitability since its inception: As of the second half of 2023, “Invescore NBFI” JSC reported a total interest income of 56.35 billion MNT, coupled with an interest expense of 18.8 billion MNT, resulting in a net profit of 17.65 billion MNT. The organization has consistently operated profitably, with no instance of a financial year where it suffered a loss. Over the past five years, the company has maintained an average return on total assets of 15.1% and an average return on equity of 26.5%. Furthermore, “Invescore NBFI” JSC has strategically expanded its presence by establishing subsidiaries in  markets such as Kazakhstan, Kyrgyzstan, and Uzbekistan. With a well-conceived plan and diligent execution, there exists substantial potential for enhanced profitability through these subsidiary operations.

Implementation of robust risk management framework throughout the group company: “Invescore NBFI” JSC integrated the ISO 9001 Quality Management System into its operations in 2022. Subsequently, on July 21, 2023, the organization underwent an audit conducted by MSECB, an international audit entity headquartered in Canada, which reaffirmed the successful implementation of the standard. The risk management system within the organization encompasses the identification, measurement, management, and control of risks that may potentially impact its operations.

At the core of “Invescore NBFI” JSC’s risk management system lies the foundation of the three lines of defense principle. The company adopted essential documents and regulations pertinent to each level of risk management procedures, further strengthening the company’s risk management framework.

Diversified funding structure: When considering the financing structure of “Invescore NBFI” JSC’s total assets as of the second quarter of 2023, 32.8% of the funding derives from shareholder’s equity, with the remaining 67.2% encompassing various forms of liabilities. This latter category includes 21.6% attributed to trust services, 22% originating from loans extended by banks and financial institutions, 10.6% representing debentures, and 12.96% accounting for other payable obligations. As of the second quarter of 2023, the company had obtained various types of fundings from Asian Development Bank, EBRD, Bridge Japan LLC, Rio Tinto, Trade and development bank, Golomt bank, M bank etc.

Potential for future expansion given its current operations in an international market: The subsidiary companies under the “Invescore NBFI” JSC have initiated operations in Kyrgyzstan, Kazakhstan, and Uzbekistan in the recent past years, and operations of these companies haven’t stabilized except Kyrgyzstan. Nevertheless, if these subsidiary entities successfully execute their forthcoming 5-year plan, it is projected that by the year 2027, approximately 50% of the total revenue will be generated from foreign markets. As per the 2023 projection, 16% of the interest income stems from foreign markets, while the remaining 84% is predominantly concentrated within Mongolia.

Rating sensitivities

Positive: Provided that the company sustains its liquid assets and maintains reserves at a prudent level to mitigate potential liquidity risks, the company’s income could become more diversified when the operations of subsidiary companies in Kazakhstan, Uzbekistan, and Kyrgyzstan markets stabilize. Future developments that could collectively lead to a positive rating action include the following:

• Ongoing enhancement of the assessment of borrowers’ creditworthiness;
• Increased liquidity and financial resources;
• Improvement in the operational and financial performance of subsidiary companies operating in international market.

Negative: Detrimental factors such as a decline in operational performance, weakened liquidity, compromised risk management framework, and lapses in the adherence to ISO 9001 Quality Management Systems may lead to an adverse impact on the credit rating. The following events, either independently or in conjunction, have the potential to exert a negative influence on credit ratings:

• Unmet expectations of business expansion;
• Decreased liquidity amidst funding difficulties;
• Deterioration of risk management and internal control systems.

Outlook: Stable

Stable outlook is a short-term outlook based on the quality of company’s loan portfolio, stable growth, good risk management system, and diverse funding sources.

Company profile:

Founded in 2016, “Invescore NBFI” JSC (RN: 6060854, Address: Mongolia, Ulaanbaatar, Sukhbaatar district, 1^st Khoroo, Parisian Street, IC tower, 14^th Floor) is engaged in lending operations, factoring operations, trust services, investing in short-term financial instruments, and providing advice and information with a special license from the Financial Regulatory Commission.

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