TCS Group - Increasing Risks of Capital Raise?

Tinkoff Bank's latest monthly RAS data showed a second consecutive month of almost 6% m-o-m net loan growth, bringing growth over 4m21 to 20% YTD, and the company is clearly on track to comfortably top its "more than 30% net loan growth" IFRS guidance. It seems reasonable to revisit the question of whether another capital raise (the last was for $300 mln in June 2019) may be on the cards.> What's changed? We addressed this issue in our April 2021 report on TCS, and our view then was that we saw the chances of a capital raise as low. Since then, loan growth has picked up, and our 40% net loan growth in 2021E may be on the low side, but profitability is stronger too (boosting capital). While the expected regulatory reinstatement of higher risk-weights (RWs) at the start of 2H21 has come through (negative for capital ratios), so has the one-off cancellation of some prior additional RWs (positive), both of which we will see in the July data.> How is the capital position now? At the start of May, Tinkoff Bank's standalone N1.1 (CET1) was 9.1% versus a 7% minimum, though the bank has close to R7 bln in unaudited earnings in N1.0, which when added to N1.1 would raise this ratio to around 9.7%. > N1.1 could drop below 9% by end-2021. There are many moving parts here, led by loan growth and RWA density. We expect strong continued loan issuance in 1H21 prior to the higher RWs kicking in and then a slowdown in 2H21. If we assume RAS net loan growth this year of 50%, and assume retail loan RWA density rising from the current 142% (1Q21) to 165% by end-2021 on the back of the impact of start of the higher RW coefficients, we get to an 8.8% end-2021 CET1. This is slightly below the 9% or so targeted by the company (roughly 200 bps over the minimum), but not materially so given the number of moving parts. It's also worth bearing in mind that the introduction of the standardized approach to operational risk will be positive for capital ratios in 1H22. > What were ratios like at the time of the last capital raise? The capital position was quite a bit weaker then. May 2019's N1.1 level was 8.2%, while N1.1 dropped as low as 7.4% at the start of August 2019 before the new capital came into the business, and the loan book was growing at a 70% y-o-y pace then.> Bottom line - capital position still looks solid enough. Overall, we think the probability of a capital raise remains fairly low. Key things to watch will be the pace of net loan growth and how quickly retail loan RWA density picks up in 2H21. For example, loan growth of 55% in 2021 and retail loan RW density at 170% could push N1.1 down to below 8.5%, which would potentially raise more questions on this issue.