The ‘A’ rating indicates that Alef-Bank is qualified as a highly reliable borrower. Risk of a delay in meeting liabilities is relatively low, restructuring risk for the loan / part of the loan is minimal.
Our credit analysis revealed a number of arguments supporting the rating score of Alef-Bank:
Alef-Bank has achieved high capital adequacy ratio and maintains good quality of its capital. As of July 1, 2011, Alef-Bank’s equity capital was RUB 2,525 million (against RUB 2,507 million as of July 1, 2010). Over the whole period under review, the share of the Tier 1 capital ranged narrowly from 74 to 80% and equaled 79.9% on July 1, 2011. As a whole, the Bank’s capital meets quality requirements of the Bank of Russia and Basel-II. The share of authorized capital of Alef-Bank in its equity capital as of July 1, 2011 is 44.6% (about 1.7-fold above the average level in Russia as of the same date, 27%).
As of July 1, 2011, capital adequacy ratio of Alef-Bank (N1) was 26% exceeding the average value across the banking system of the Russian Federation (17.2%) more than 1.5-fold. The Bank’s N1 value is invariably above the average value in Russia’s banking system. As of July 1, 2011, the bank’s equity capital is estimated at RUB 2.52 billion accounting for 40% of its liabilities (15% in Russia’s banking system). Equity capital mainly comes from reliable sources: the authorized capital, the additional paid-in capital, the retained earnings. The bank’s additional capital basically comes from a subordinated loan.
One of essential arguments for the rating score is the high quality of Alef-Bank's loan portfolio. The share of NPLs and class 4 loans in the loan profile are fairly low. The low share of debt arrears is also favorable for the loan portfolio. As of July 1, 2011, loan arrears of Alef-Bank account for a mere 0.23% of the loan portfolio, far below the average level in Russia’s banking system (4.5%). It will be noted that the loan arrearage situation is amazingly better at Alef-Bank than it is in Russia’s banking system overall. Besides, the number of loans prolonged by the largest borrowers is low.
Our analysis of the bank’s loan assets revealed that the reserve rate is high. Actual provisions against possible losses as of July 1, 2011 was 1 RUB 281.8 million including provisions against possible losses on loans, loan indebtedness and its equivalents amounting to RUB 1.207.7 million considerably exceeding the loan arrears. Reserve rate of Alef-Bank exceeds the Russian banking system’s average level 6-fold. As a whole, the provisions squirreled away by the bank fully meets the Bank of Russia’s requirements for a loan portfolio of similar quality.
Liquidity of Alef-Bank is quite acceptable. Average quick liquidity ratio in the first half year 2011 was 29.4%, current liquidity ratio for the same period was 81.3%. Both liquidity values are therefore acceptable. Alef-Bank’s quick assets as of reporting dates meet the minimum value required to ensure due liquidity. The share of cash funds in Alef-Bank’s assets as well as its funds on its correspondent accounts at the Central Bank of the Russian Federation and correspondent banks as of July 1, 2011 was 10.6%. Therefore, the credit institution possesses considerable liquid funds on its balance sheet. Average long-term liquidity ratio for H1 2011 was 40.7% meeting the Bank of Russia’s applicable requirements.
One of the things restrictive on the rating score of Alef-Bank is the small customer pool. With the tough competition against the largest banks capable of pursuing a more flexible customer relations policy and enjoying a cheaper resource base, the bank’s dependence on the current customer certainly constitutes a risk factor in the current context. It will be noted, however, some of Alef-Bank’s customers are large enterprises representing various industries (mechanical engineering, petroleum chemistry, metallurgy, etc.) with whom the bank has established long-term and stable business relations.
Alef-Bank’s activity inherently generates increased currency risks. The bank has a sufficiently long foreign exchange position. In 2008 and early 2009 (when the Russian ruble depreciated), the foreign exchange revaluation resulted in a considerable profit, yet the currency transactions brought about a decrease in the bank’s profit in 2006, 2007 and 2010. In the first half year 2011, the Bank’s foreign exchange operations also generated losses for Alef-Bank.
However, it will be noted that Alef-Bank has not posted losses for the whole period under review. For the first half year 2011, Alef-Bank posted a profit of RUB 34.0 million. In 2010, Alef-Bank’s profit was RUB 68.6 million.
Alef-Bank has been active in the market of banking services since 1992. In 2003, Alef-Bank was granted general banking license no. 2119. On December 27, 2010, it was also granted a license for attraction of deposits of precious metals. The bank is also licensed as a professional securities market participant for dealing, brokerage, depositary, securities management operations (licenses issued on November 16, 2000) and for exchange intermediary services (December 27 2007). In March 2005, the Banking Supervision Committee of the Central Bank permitted Alef-Bank to join the Deposit Insurance System (DIS). The Bank’s auditor is Vneshaudit Consulting LLC. On December 27, 2010, the Bank of Russia’s Credit Institutions Licensing & Financial Rehabilitation Department registered bond issue 1 of Alef-Bank in the amount of 1,000,000,000 rubles.
Among Russian regional banks, Alef-Bank is a mid-sized bank in the amount and volume of operations. The Bank’s network consists of three branches in Kurgan, Lebedyan and Lysva.
In the volume of net assets in Russia as of July 1, 2011, Alef-Bank ranks 227th in Russia. Over a year, the Bank’s net assets increased by almost 40%. As of July 1, 2011, its equity capital is estimated at RUB 2,525 million. In the equity capital as of July 1, 2011, Alef-Bank ranks 132nd in the banking system of the Russian Federation. Alef-Bank provides the whole range of banking products and services involving rubles and foreign currencies and is active in the market of precious metals and securities.

This press release is based on the statement of assigning a credit rating to Alef-Bank.
The rating score, 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, for listing bonds and for providing access to the MICEX+ trading mode). 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.

E-mail: zolotokopov@akm.ru