CJSC AK&M Rating Agency assigned an 'A' microfinance institution credit rating on the national scale, tier 3, to Autonomous Establishment of Republic of Kalmykia 'Center of enterprise development', with a stable outlook.

The 'A' rating indicates a high level of creditworthiness of AE RK CED as a microfinance institution. Risk of a delay in meeting obligations is relatively low, full or partial debt restructuring risk is minimal.

The rating action reflects the microfinance institution's high lending efficiency, acceptable cost-based performance ratio, lower loan arrears and portfolio-at-risk (PAR) ratio as well as comfortable operational sustainability.

AE RK CED's lending efficiency has been high over the three years in the market, reaching 99.9% on April 1, 2014 (the minimum percentage recommended by Russia's Ministry of Economic Development being 80%). AE RK CED invested the whole amount of financial assets allocated for microloans. In absolute terms, the Fund's capitalization was RUB 111.941 million, its loan book reaching RUB 111.839 million. In 2013, AE RK CED reduced its operating expenses to RUB 9.795 million (against RUB 11.326 million in 2012). As a result, the Fund's operating cost to average loan portfolio ratio decreased to 10.2%, meeting the Ministry of Economic Development's requirements (no more than 30%).

As of April 1, 2014, arrears on the loans provided by AE RK CED decreased by RUB 466 thousand year-on-year to RUB 3.314 million. The Fund received RUB 183 thousand in repayment of microloans in the first quarter of 2014, RUB 3.062 million in 2013. Where loans are more than 90 days in arrears, legal proceedings are in progress against the defaulting borrowers, or court rulings to recover the property provided as collateral for the microloans are being executed. Where the borrowers were ready to cooperate, the Fund extended their loans. In particular, the amount of debt restructured in the first quarter of 2014 was RUB 3.336 million (RUB 7.059 million in 2013). The portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development's Order 220 dated April 24, 2013) decreased by 1.3% since April 1, 2013, reaching 5.6% as of the reporting date (the maximum acceptable level being 7%).

At the same time, we regard the shrinking number of microloans provided by AE RK CED as a key negative rating driver. In AK&M Rating Agency's view, the lower capital adequacy could generate risks for the Fund.

Over the period of microfinance activities, AE RK CED has provided 599 microloans for a total amount of RUB 388.696 million. In 2013, the total amount of loans dropped to RUB 59.790 million (against RUB 94.500 million in 2012).

At the beginning of the first quarter of 2014, AE RK CED resorted to borrowed capital (RUB 30 million, maturing in 3 years) from Russia-based SME Bank, so as to expand its SME-targeted microloan portfolio. As a result, the Fund's equity capital adequacy level decreased to 84.1%, although still meeting the Ministry of Economic Development's level (at least 15%).

It should also be emphasized that this borrowing enabled the Fund to increase the amount of business 2.6 times granting 31 microloans for a total amount of RUB 27.050 million in the first quarter of 2014 against 12 loans for a total amount of RUB 7.800 million for the same period in 2013. This implies a high probability of a stronger microlending performance in 2014.

Autonomous Establishment of Republic of Kalmykia 'Center of enterprise development' was established in 2009 as an affiliate entity of the Republic of Kalmykia's Ministry of Economy and Trade. Its mission is to develop a system of lending to small and medium-sized businesses, to provide guarantees (sureties) for liabilities of SME entities. The Fund was registered as a microfinance institution on December 8, 2011.

This press release is based on the statement of assigning a microfinance institution credit rating to Autonomous Establishment of Republic of Kalmykia 'Center of enterprise development' / AE RK CED.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the autonomous institution's creditworthiness and shall not be construed as a recommendation to lend funds to the Fund.

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.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

CJSC AK&M Rating Agency

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www.akmrating.ru

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