The ‘B++’ rating indicates that CB capital">Intercapital-Bank LLC qualifies as a sufficiently reliable borrower. Risk of a delay in meeting liabilities is moderate, restructuring risk for a loan / part of a loan is insignificant.

We appreciate the high capital adequacy and quality, growing income, and high loan portfolio quality as the positive rating drivers.

The capital adequacy ratio of CB capital">Intercapital-Bank LLC is high (26%-35% in 2012 and early 2013, over 40% since March 2013, reaching 40.71% as of May 1, 2013), much above the average percentage in Russia’s banking sector. The Bank’s authorized capital (RUB 480 million as of May 1, 2013) accounts for more than 60% of its equity capital (RUB 788.6 million as of the same date). In 2013, the Bank improved its equity by 25.4%, authorized capital by 14.8%.

The Bank’s capital quality ratio (Tier 2 to Tier 1 capital ratio) which stayed below the maximum value recommended by the Central Bank of Russia (30%) until January 1, 2013, increased to 34.0% as of May 1, 2013. The Bank’s core capital consists of its authorized capital, reserve fund and retained earnings, while the supplementary capital arises from a subordinated loan.

The high capital adequacy and quality support the rating of CB capital">Intercapital-Bank LLC.

In 2012 and the 1st quarter of 2013, the Bank boosted its earnings: gross margin increased by 49.0% and 48.4%, respectively, net income by 21.0% and 32.2%, respectively. The Bank mainly derives net income from its net interest margin after provisions against losses (31.7%), net fee and commission income (36.5%) and net income from forex operations / foreign currency revaluation (18.7%). In absolute terms, the Bank’s net profit totaled RUB 248.18 million in 2012, RUB 66.23 million for Q1 2013.

CB capital">Intercapital-Bank LLC maintains high quality of its loan portfolio. As of April 1, 2013, prime loans accounted for about 30%, nonprime loans for 50%, doubtful loans for 14% of the total loans receivable. The share of problem and non-performing loans is fairly low, the loan arrears accounting for about 1% of the total loans receivable, with generous provisions available (19% of the loan portfolio).

The maximum amount of major credit risks (N7 ratio, 133.44% as of May 1, 2013), maximum amount of credit risk per borrower or group of related borrowers (N6 ratio), and total magnitude of insider-specific risk (N10.1 ratio, 0.56% as of May 1, 2013) are not approaching the maximum thresholds. The maximum amount of major credit risks (as estimated in 2012 and early 2013) and total magnitude of insider-specific risk (as estimated in March-April 2013) are below the average levels in Russia's banking sector.

At the same time, the weaker performance indicators in Q1 2013, unstable balances of legal entities’ accounts, and major fluctuations of liquidity ratios are working against the Bank’s rating.

In the first quarter 2013, the Bank’s assets and liabilities decreased by 27.2% and 36.0%, respectively. Among the asset items, net loans receivable shrank by 16.3%, while highly liquid assets dropped more than twice. Among the liability items, the balances of legal entities’ accounts opened with the Bank decreased by 26.6%.

As a result, the Bank’s assets, net loans receivable, liabilities, balances of legal entities’ accounts on April 1, 2013 were below what they had been on January 1, 2012 (it will be noted that the Bank’s assets and liabilities increased by 28.5% and 35.5% in 2012, respectively). As of May 1, 2013, the Bank restored its assets, loan portfolio and balances of legal entities’ accounts roughly to the early 2012 level.

As a whole, the balances of legal entities’ accounts opened with the Bank were anything but stable in 2012 and early 2013, with steep monthly hikes and falls reaching ca. 30%. January-February 2013 was the only two-month period where the Bank’s account balances stayed permanently high. As long as the Bank does not raise funds from individuals, legal entities’ deposits are dominating its liabilities. The fairly high concentration of liabilities related to large creditors / depositors (about 40% of the Bank’s total liabilities are attributable to its ten largest depositors) is another risk factor for the stability of deposits.

The Bank’s acid test and current liquidity ratios are prone to dramatic fluctuations detected almost monthly and reaching 30% (in October 2012). Overall, these ratios are lower than in Russia's banking sector: as of October 1, 2012, current liquidity ratio was 53.25%, not far from the minimum acceptable percentage. As of May 1, 2013, acid test ratio was 53.11%, current liquidity ratio was 84.95%.

Full name: Commercial Bank capital">Intercapital-Bank (Society with Limited Liability).

Short name: CB capital">Intercapital-Bank LLC.

The Bank operating in the market of banking services since 1994 was registered by the Bank of Russia under no. 2706. The bank possesses a license for banking operations involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of September 28, 2007. The Bank does not accept money deposits from individuals and does not participate in the compulsory deposit insurance scheme.

Headquartered in Saransk, the Bank is operating branches in Moscow, Tver and Belgorod, a network of outlets in Moscow, Tambov, Nizhny Novgorod, Ufa and St. Petersburg (a total of 8 different offices). CB capital">Intercapital-Bank LLC provides the whole range of banking services involving Russian rubles and foreign currencies to legal entities, lends to individuals and legal entities, performs operations in the securities market, and provides money transfers denominated in Russian rubles and foreign currencies without opening bank accounts.

This press release is based on the statement of assigning a credit rating to CB capital">Intercapital-Bank LLC.

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: A.M. Krachkovskaya
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.