The ‘B++’ rating indicates that JSCB">JSCB Zarechye (JSC">OJSC) is qualified 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.

The rating of the Bank is essentially supported by the high equity capital quality and adequacy, the growing profit in the first half of the year 2012, steadily high quality of the loan portfolio and the low relative weight of loans in arrears.

The Bank’s equity capital quality remains fairly high. The authorized capital of JSCB">JSCB Zarechye (JSC">OJSC) is RUB 1,000 million accounting for 92.7% of its total funds, far above the average level in Russia’s banking system (24-25%). It will be noted that the Bank’s equity capital, although not increasing, is enough to met the requirements of the Central Bank of Russia and to ensure stable operation.

JSCB">JSCB Zarechye (JSC">OJSC) maintains sufficiently high capital adequacy. Over the period since our previous analysis, N1 (capital adequacy ratio) has stayed in the 26-37% range. As of August 1, 2012, it was equal to 26.02%.

The Bank’s profit metrics increased in H1 2012. Pre-tax profit rose by 71.5% year-on-year to RUB 38.3 million. The Bank’s net incomes increased across the board, except for the income from operations with foreign currencies. Net profit increased by 57.6% year-on-year to RUB 27.0 million.

JSCB">JSCB Zarechye (JSC">OJSC) has not failed to maintain high quality of its loan portfolio. As of July 1, 2012, NPLs and problem loans account for less than 1% of the loan portfolio, far below the average level in Russia’s banking system (about 7%). The relative weight of doubtful loans in the loan receivables is 10.0% (against about 10% on average in Russia’s banking system), the relative weight of class 1 loans and class 2 loans is 90%, roughly meeting the average percentage in Russia’s banking system (83.2%).

Another positive signal for the rating score of JSCB">JSCB Zarechye (JSC">OJSC) is the steadily low percentage of arrears on the loans granted by the Bank and other funds placed by it. As of July 1, 2012, it was less than 1% of the loan receivables, way below the average percentage in Russia’s banking system (4%).

At the same time, the Bank’s rating score is restricted by the high concentration of liabilities within one group of investors, and the relatively high N9.1 ratio.

The concentration of liabilities in terms of the funds contributed by investors still remains high. As of July 1, 2012, the largest group of depositors accounted for 81.4% of all the liabilities (RUB 2,628 million). With this concentration of liabilities in mind, the Bank appears to be highly dependent on one major customer (Public JSC Kazan Helicopters), constituting a risk factor. However, it will be noted that the Bank has been proven continuously efficient and sustainable under such conditions.

The N9.1 ratio (maximum amount of loans, guarantees and surety bonds provided to the bank’s members) is significantly above the average levels in the banking system of the Russian Federation. Over the last year, the N9.1 ratio of JSCB">JSCB Zarechye (JSC">OJSC) was 27-28%, except for the peak value of 41.23% as of February 1, 2012 (the maximum threshold set by the Central Bank of Russia being 50%).

The Bank (full business name in English, as per Articles of Association: “Zarechye” Joint-Stock Commercial Bank (Open Joint-Stock Company); short business name: JSCB">JSCB “Zarechye” (JSC">OJSC), active in the market of banking services since 1990) possesses general banking license no. 817 granted by the Central Bank of the Russian Federation on June 19, 2012.

JSCB">JSCB Zarechye (JSC">OJSC) participates in the compulsory insurance scheme, DIS registration certificate no. 32 as of October 1, 2004.

JSCB">JSCB Zarechye (JSC">OJSC) provides all kinds of banking services involving Russian rubles and foreign currencies. It 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 12/28/2009, a member of the self-regulatory audit organization Moscow Audit Chamber).

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

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability 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.

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 – Provision 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide business banking services to project and engineering companies implementing investment projects), 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). As decreed by Russia's Government, AK&M Ratings count for approving the capitalization increase procedure for 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