The ‘A' rating qualifies OJSC Coalmetbank as a highly reliable borrower.

We appreciate the Bank’s effective package of measures to streamline its operations in 2012, improving equity capital, high profitability and return ratios, and strong liquidity position.

In 2012, the shareholders of OJSC Coalmetbank made a number of strategic decisions with the effect that the Bank’s Board of Directors and virtually all its top managers were replaced, the development strategy adjusted. In 2012, the Bank closed the loss-making branch in Voronezh, streamlined its operations at several regional branches restructuring them as lending and cash services offices or internal business units (supplementary offices). Besides, some of the customer service functions were centralized at the HQ in Chelyabinsk, which cut down personnel costs. Today, the Bank management team’s policy can be regarded as balanced and contributing to its sustainable development.

As of 1/1/2013, equity capital of OJSC Coalmetbank was RUB 1.05 billion increasing by 23% against the same date in the previous accounting period. Capital adequacy ratio (N1) of the Bank has never plunged below the minimum percentage required, with an upward trend since mid-2011, reaching 12.2% on 1/1/2013 and approaching the average level in Russia’s banking system (13.7%).

In 2012, the Bank’s pre-tax profit was RUB 357.9 million against RUB 4.7 million the year before. Net profit of OJSC Coalmetbank amounted to RUB 275.5 million (the bank posted a loss in 2011). Therefore, return on assets was 2.84%, return on equity was 38% (2.3% and 18.2% on average in Russia’s banking system, respectively).

The N2, N3 and N4 ratios are fairly high. As of 1/1/2013, N2 was 48.99%, N3 was 98.6%, N4 was 38.36%, against the average percentage values in Russia’s banking system of 58%, 82.9% and 85.5%, respectively. The strong liquidity position of OJSC Coalmetbank is also favorable for its rating. As a whole, liquidity risk management at the Bank meets the Central Bank of Russia’s requirements.

At the same time, the Bank’s rating is under the pressure of decreasing KPIs, low capital quality, high loan arrears, and major fluctuations in return ratios.

As of 10/1/2012, the Bank’s liabilities decreased by 20% to RUB 10.5 billion resulting from the shrinking funds of the Central Bank of Russia, lower deposits of credit institutions and individuals. For three quarters 2012, the Bank’s assets dropped by 17.6% against January 1, 2012 and by 24.3% year-on-year to RUB 11.2 billion, mainly due to a reduction in the net loan receivables caused by the lower volume of lending and fund raising in the interbank lending market. At the end of the year, the bank’s customer base declined to 16,113 customers as of 1/1/2013 against 18,475 the year before.

The weaker performance resulted from the structural changes the Bank witnessed when implementing its development strategy aimed at streamlining the operations; these changes, while affecting the Bank’s customer base as the loss-making units were closed, also cut down the Bank’s expenses ensuring a high annual result in terms of profit.

As of 1/1/2012, the Bank’s capital quality (Tier 2 to Tier 1 capital ratio) was 53.2%, above the values recommended by the Basel Accord (under 50%) and the Central Bank of Russia (under 30%). As of 1/1/2013, this ratio rose to 69.4%, indicating further degradation of the Bank’s capital quality.

Over the period under review, the Bank’s return on equity showed violent fluctuations against the average value in Russia’s banking system. The ROA ratio also witnessed mixed trends, indicating a lack of stability in the Bank’s profits against the shrinking assets.

While we saw a reduction in total loan receivables, arrears on the loans granted by OJSC Coalmetbank and other funds placed by it reached 11.6% on January 1, 2013, far above the average value in Russia’s banking system (3.7%).

OJSC Coalmetbank, currently a mid-sized Russian bank in terms of its size and volume of operations, was established in Mezhdurechensk, Kemerovo region, on July 27, 1994. In 2005, the bank’s management team moved the HQ to Chelyabinsk. The Bank is licensed for banking operations (lic. no. 2997 as of July 27, 1994). On January 01, 2013, OJSC Coalmetbank ranked 239th in assets, 360th in equity capital, 146th in retained earnings (source of information: Interfax). As of 1/1/2013, the bank operated 20 offices in Russia’s Siberian, Ural and Central federal districts. OJSC Coalmetbank participates in the Deposit Insurance Scheme. The bank is a member of the Association of Regional Banks; its auditor is CJSC ENERGY CONSULTING/Audit.

OJSC Coalmetbank provides all principal kinds of banking products and services involving Russian rubles and foreign currencies, and is engaged in operations in the security market. The Bank focuses on operations in the stock market, lending to the real sector, primarily coal and metallurgical companies, and consumer lending within payroll card programs.

This press release is based on the statement of assigning a credit quality rating to OJSC Coalmetbank.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Bank.

CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), and the MICEX (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base and for listing bonds). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC AK&M Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.V. Yakovenko
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.