The 'B++' rating indicates that Zarechye Bank (JSC) qualifies as a sufficiently reliable borrower (the highest sub-grade of the 'B' grade). Risk of a delay in meeting liabilities is moderate, restructuring risk for a loan / part of a loan is insignificant.

We regard the high capital adequacy and quality, profitable operations, sustained loan portfolio excellence, and low credit risk assumed as positive rating drivers for the Bank.

Zarechye Bank (JSC) keeps its capital adequacy high. The N1 ratios are above the average values in Russia's banking sector. As of August 1, 2013, N1 was 26.83%. The Bank's capital quality ratio (Tier 2 to Tier 1 capital ratio) as of the same date was 17.7%, meeting the Central Bank of Russia's guideline (no more than 30%). The Bank's authorized capital is still the main source of its equity capital (83.2%).

In recent years, the Bank has been a profit-making institution staying above the break-even point. For the first half of the year 2013, its net profit totaled RUB 19.0 million; as of July 1, 2013, return on assets was 1.7%, return on equity was 6.7%.

The Bank maintains high quality of loan portfolio and low percentage of loan arrears, which is contributing to its rating. High-grade loans (quality grades 1, 2) are dominating the Bank's lending portfolio reaching a total of 89.2% as of August 1, 2013. Only 0.1% of the Bank's loans are non-performing, not a single one is qualifying as a problem loan.

The share of loan arrears is fairly low (less than 1% of the total loans receivable), which is a strong result (against ca. 4% in Russia's banking sector).

The Bank keeps its credit risks low. The average quality of statutory credit risk ratios, applying AK&M Rating Agency's estimation guidelines, is 100%, which is a fairly good result.

At the same time, the high dependence on the major customer(s), lower number and amount of legal entities' deposits, and weak current liquidity position are still working against the rating.

The concentration of liabilities in one group of investors is fairly high, despite efforts to balance them, which we regard as one of the risk factors for the Bank. As of August 1, 2013, the maximum share of liabilities attributable to one group of investors was 59.3%, while 10 largest investors (groups of investors) accounted for 72.13% of the total liabilities.

At the same time, the Bank is facing a reduction in the number of accounts and lower balances of legal entities, which we regard as one of the negative rating drivers. For 2012 and 6 months 2013, the legal entities' account balances decreased by 1.8% and 5.7%, respectively. The number of accounts dropped by 20.8% in 2012, and further decreased by 3.0% in the first half year 2013.

Another weak point is the relatively low N3 ratio, with multiple failures to meet the regulatory requirements, mainly due to the Bank's commitment to one group of clients.

Full name: Zarechye Joint-Stock Commercial Bank (Open Joint-Stock Company).

Short name: Zarechye Bank (JSC)

Zarechye Bank (JSC) has been operating in the market of banking services since 1990. The Bank is licensed by the Central Bank of the Russian Federation, general banking license no. 817 as of June 19, 2012, with a banking license to accept deposits precious metals and effect other transactions involving precious metals, dated November 15, 2002.

The Bank participates in the compulsory deposit insurance scheme, DIS registration certificate no. 32 as of October 1, 2004.

Zarechye Bank (JSC) provides all types of banking products and services involving Russian rubles and foreign currencies. Besides, the Bank focuses on lending to the real sector and supporting its customers' foreign operations.

The Bank is headquartered at: Luknitskogo street 2, Kazan, Russia. Apart from the HQ, its network comprises 1 branch, 2 subsidiary offices, 1 stand-alone cash desk and 2 representative offices.

The Bank's auditor is Presto Audit LLC (principal registration number in the Register of auditors and audit firms 10203043757 as of December 28, 2009, a member of self-regulatory audit organization Moscow Audit Chamber).

This press release is based on the statement of assigning a credit rating to Zarechye Bank (JSC).

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.

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.

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

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), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). 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: Y.B. Kuznetsova
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18