Rating action

Scope Ratings UK Limited (Scope) has downgraded JSC Silk Bank’s issuer rating to CCC from of B- and placed the ratings under review for a possible downgrade. The significant transformation of the bank’s business model is lasting longer than expected, with the bank’s current poor financial performance expected to continue in 2026. Meanwhile, fast volume growth contributes to a significant erosion of regulatory capital levels which we expect to further reduce to the regulatory minimum if growth continues as projected. The ‘under review’ placement reflects the bank’s challenges to ensure it remains financially viable in absence of tangible external capital support to provide the bank with sufficient capacity not only to offset mounting pressure on its weak financial position, but also to allow a stabilisation of its business model transformation and risk-profile in the medium-term. The bank’s owners have regularly buffered the transformation with capital increases, but we believe a successful transformation will hinge on future credible and longer lasting support commitments.

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

Key rating drivers

Business model assessment: Focused (Low). The issuer rating is anchored by the Focused (Low) business model assessment. Silk Bank is a small niche bank with total assets of GEL 220m (approx. EUR 69m) as of December 2025. The bank operates exclusively in Georgia where its market share on loans is very limited, amounting to less than 1% as of December 2025.

Silk Bank is currently undergoing a significant strategic overhaul of its business model to transform into a fully digital bank focused on highly competitive retail, consumer banking and micro lending segments. The assessment reflects the bank’s still-limited, though gradually improving, product diversification and limited execution track record. The ongoing transformation of the strategy has yet to be proven.

In June 2025, Silk Bank made the strategic decision to discontinue SME lending business segment, its largest loan portfolio at the time, for profitability and capital efficiency reasons. Silk Bank is expected to continue expanding organically across consumer lending, Buy Now Pay Later (BNPL) credit cards, micro lending, with a particular focus on domestic self employed borrowers and Georgian diaspora. Between 2022 and November 2025, the bank’s remaining loan portfolios expanded approx. fifteenfold, but growth did not allow to make up for the discontinued operations. Full execution of the transformation will require several years to provide, in our view, evidence of successful execution, which if not achieved could also have an effect on the current assessment of the bank’s business model.

Operating environment assessment: Constraining (High). The assessment reflects Scope’s view on Georgia, Silk Bank’s sole market.

Georgia (Constraining – High for the banking and micro banking sector) is the bank’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).

The banking sector has traditionally exhibited high profitability, with an average RoE of about 24% since 2022 due to overall lending volume growth and increasing net interest income. The domestic banking system is highly concentrated and characterised by a moderate level of cost efficiency and improving asset quality indicators. Overall, non-performing loans have declined since March 2023, amounting at 2.6% as of August 2025. Georgian commercial banks are on average well capitalised, maintaining satisfactory capital buffers above minimum requirements.

Georgian banking regulations are considered adequate by international standards and are the strongest in the Caucasus area. While not formally part of the EU, the capital requirements for the Georgian banking sector are aligned to the Basel III standards.

Our CLOE assessment for Georgia incorporates a downwards adjustment to account for heightened geopolitical risk, including a highly contested election and political crisis in 2024, as well as the high level of dollarisation of the economy, which heightens the risks to asset quality from currency volatility.

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): Neutral. 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.

Silk Bank’s strategic initiatives to develop digital capabilities are key to transform the business model to become an innovative digital bank. If executed well, it could provide a competitive advantage and position the bank as a challenger to the incumbent banks in the domestic market.

Sustainability initiatives are embedded in Silk Bank’s strategy, and its digital only model is expected to reduce environmental impact through minimal use of natural resources, lower energy consumption, and a substantial decline in paper based operations.

Silk Bank is a majority-owned subsidiary of Silk Road Group Holdings Malta Limited, the ultimate parent of Silk Road Group Holdings LLC, one of the leading private investment groups active in the Caucasus and Central Asian regions, based in Georgia. The bank is privately owned by three companies, of which the two largest shareholders own approx. 92% of the bank as of December 2025.

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

Earnings capacity and risk exposures assessment: Constraining (-1 notch). The assessment reflects Scope’s view that the bank’s earnings capacity is weak and variable over economic cycles and is likely not sufficient to cover expected losses. Earnings and loss experience may show high volatility. Concentration risks require monitoring and can weigh on future performance. Asset quality metrics are below peers. Management is addressing risks, but these may still lead to material losses, putting pressure on the issuer’s viability.

The bank reported losses since 2022 which more than doubled in 2025 on a yearly basis due to high operating costs and heavy investment in digital tools to strengthen its business model. Costs growth is expected to continue exceeding the bank’s growing revenues, a trend that is likely to persist, with a re-assessed break-even scenario that has been postponed.

The bank is challenged to mitigate mounting pressure on asset quality and losses which will depend on both, its ability to adequately work down the run-off portfolios, but also to maintain adequate underwriting standards in its new core markets. Asset quality deteriorated particularly within the construction sector, increasing the bank’s net Stage 3 ratio to 2.3% in 2025 from 0.6% in 2024. Cost of risk increased to approx. 330bps in 2025 and will further increase due to the bank’s focus on higher risk consumer lending.

Establishing a profitable business model and the timing for achieving break-even has now been postponed, which in our view adds further pressure on the earnings capacity and risk exposures’ assessment.

Financial viability management assessment: Limited (-1 notch) from Adequate. The assessment reflects Scope’s view that the issuers management of financial resources puts pressure on its ability to conduct its medium-term strategy independent and free of regulatory or financial viability considerations.

Silk Bank’s buffers against minimum capital requirements remained sound ranging between 7-14 p.p. until Q4 2025. Continuation of strong growth will lead to a significant erosion of buffers while losses related to the discontinuation of the SME business loans will add further pressure.

Maintenance of buffers sufficiently above the minimum requirement is key to support the profound business transformation of the bank’s credit profile and the current rating until organic capital generation can support growth. Current growth and capital trajectory, in particular management’s intention to manage capitalisation close to the regulatory minimum requirements, make the implementation of the bank’s strategy fully reliant on further external capital commitments from shareholders.

There is evidence of regular support through repeat capital increases by its owners until now. However, the postponement of the timing for the break-even, a yet to be proven success of the new strategy and the lack of a public, medium to long term strong commitment to continue accompanying the transformation by its owners, are in our view limitations to consider ongoing support to be forthcoming. The expected evolution of regulatory capital ratios based on the existing strategic plan leads the changed assessment at ‘Limited’.

Liquidity metrics currently remain above the minimum regulatory requirements. The LCR is strong at approx. 204% but the NSFR—at 121% as of Q4 2025—stands only at a sufficient level. The anticipated further expansion of the loan book will continue to weigh on liquidity, although levels are expected to remain above regulatory minimum requirements.

Silk Bank’s funding structured has historically been tilted towards current accounts and deposits from customers but recently high coverage dropped to around 70% of the bank’s total funding as of November 2025, mainly prompted by the closure of a large certificate of deposit.

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

Under review for a possible downgrade

The under review placement for downgrade reflects the bank’s challenges to remain financially viable in absence of timely and tangible capital support from its major shareholders.

Scope's objective is to resolve the under review status as soon as there is clarity that shareholders or other capital providers are willing and able to continue to support on a sustained basis the transformation of the business model. The absence of such a support commitment, coupled with capital management buffers close to the regulatory minimum, could result in a further adjustment of our financial viability assessment and further downgrade of the rating.

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

JSC Silk Bank
Issuer rating: CCC/under review for possible downgrade, issuer rating downgrade, under review placement

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for this Credit Rating, (Financial Institutions Rating Methodology, 18 September 2025), is available on 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 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 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 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 scoperatings.com/governance-and-policies/rating-governance/methodologies.

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 the principal grounds on which the Credit Rating is based. Following that review, the Credit Rating was not amended before being issued.

Regulatory disclosures
This Credit Rating is issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Rating is 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 18 June 2024. The Credit Rating/Outlook was last updated on 28 May 2025.

Potential conflicts
See 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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