The ‘B++' rating indicates that OJSC Kuznetsky Bank is qualified as a sufficiently reliable borrower. Risk of a delay in meeting liabilities is moderate, restructuring risk for the loan / part of the loan is insignificant.
The rating score of OJSC Kuznetsky Bank is supported by the growing equity capital, the steadily expanding customer base, the profitable operation and the good balance of liquid assets and obligations in terms of currency.
Equity capital of OJSC Kuznetsky Bank increased by RUB 88,989 thousand (40.4%) in 2011 and by RUB 69,424 thousand (22.4%) for 4 months 2012. As of May 1, 2012, the Bank’s capital totaled RUB 378,871 thousand. In 2011, the Bank’s authorized capital increased by 33.1%; the other growth drivers for the equity capital being the increasing retained earnings. In 2012, equity capital basically increased resulting from revaluation and adding value to property of the credit institution.
The customer base of OJSC Kuznetsky Bank provides the Bank with reliable funding. The number of customers increased by 18.9% in 2011 and by 5.0% in the first quarter 2012. The bank serves more than 40 thousand legal entities and individuals. The number of loans granted by the Bank is also increasing (by 91.5% in 2011, by 14.6% in the first quarter 2012).
The Bank is operating in the black. Its pre-tax profit totaled RUB 58,556 thousand in 2011, RUB 8,251 thousand in the first quarter 2012. In 2011, return on equity was 22.5% (above the average value in Russia’s banking sector), return on assets was 2.4%, (roughly matching the banking average). In the first quarter 2012, the return ratios decreased down to a reduction in the net profit against Q1 2011 (10.9% and 1.4%, respectively). Over the same periods, average ROE in Russia’s banking system was approximately 18%, average ROA was 2.4%.
Another argument for the rating score of the Bank is its good balance of liquid assets and liabilities in terms of currency. More than half of both assets and liabilities of the Bank mature in no longer than 180 days - those taking longer to mature are also well-balanced.
The Bank’s rating score is restricted by the low equity capital adequacy ratio, the decreasing share of net interest income in the net income structure, the high magnitude of large credit risks and insider-specific risks, and the unstable current liquidity ratio.
Equity capital adequacy ratio at OJSC Kuznetsky Bank is below the average value in Russia’s banking sector. N1 values as of most of the monthly reporting dates ranged from 11% to 13% in 2011 and early 2102 against the average capital adequacy ratio in Russia’s banking sector of 18.1% in early 2011 and 14.6% as of April 1, 2012.
The share of net interest income in the Bank’s net income structure has decreased since the since second half year 2011. Net fee and commission income in the fourth quarter 2011 and in the first quarter 2012 was somewhat higher than the net interest income. The two basic components of the Bank’s net incomes are: net interest income after provisions against possible losses and net fee and commission income.
The maximum amount of large credit risks and total magnitude of insider-specific risk of OJSC Kuznetsky Bank are high. In H2 2011, the maximum amount of large credit risks was 400-460% (the regerence">regerence value as of May 1, 2012 being 342.9%). Total magnitude of insider-specific risk in H2 2011 and Q1 2012 ranged from 1.3% to 2.0%.
The Bank’s current liquidity ratio is not stable. Its fluctuations between successive reporting dates reach 20%. The reference value as of May 1, 2012 was 62.7%.
Open Joint Stock Company Kuznetsky Bank has been active in the market of banking services since 1990 (reg. no. 609 at the Bank of Russia). The bank’s activity is subject to the banking license for operations involving Russian rubles and foreign currencies (without accepting deposits of cash funds from individuals) as of 1/19/2012 and the license for accepting deposits of cash funds from individuals, as of 1/19/2012. The Bank participates in the deposit insurance scheme, DIS scheme registration no. 428 as of January 14, 2005.
Headquartered in Penza, the Bank has a branch network in. Penza and in the Penza region. It provides the whole range of banking services involving Russian rubles, lends to legal entities and individuals.
The Bank’s auditor is Audit-Service LLC (location: ul. Lermontova 8, office 3, Penza City. The auditor is a corporate member of SRO Auditors Guild IPBR (Russian Institute of Professional Accountants), registration no. 19904023427.

This press release is based on the statement of assigning a credit rating to OJSC Kuznetsky Bank.
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.
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 – 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 entities 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). Pursuant to an order of 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.

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Press release by: A.M. Krachkovskaya
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