The 'B++' rating indicates that JSC Coalmetbank qualifies as a sufficiently creditworthy borrower. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant.

The Bank qualifies as a mid-sized Russian credit institution in terms of the amount of business. As of January 1, 2015, the Bank ranked 281st among Russian banks in terms of asset size, 472nd in terms of equity capital, 731st in terms of net profit.

JSC Coalmetbank headquartered in Chelyabinsk is operating in 7 regions in 4 federal districts of Russia. The Bank's branch network consists of 19 structural units including the HQ, 2 branches, 8 satellite offices, 2 operational offices, 3 loan desks and 3 stand-alone cash desks. The Bank provides the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

Until mid-2014, NPF Mechel-Fund was the Bank's major shareholder (88.14%); July 2014 brought fundamental changes to the Bank's shareholding structure. Today, the Bank is beneficially owned by private investors including Igor Zyuzin, a co-owner of the Mechel mining and metallurgical holding, which indicates Mechel OAO's steady position in the corporate governance of JSC Coalmetbank.

The Bank's credit rating is essentially supported by sits high quality of capital, stabilization and structural improvements of the loan portfolio, strong liquidity and capital adequacy metrics.

In 2014, the Bank's capital quality ratio (Tier 2 to Tier 1 capital ratio) reached 28.2%, thus meeting both the Basel Accord guidelines (below 50%), and the Bank of Russia's requirements (below 30%). The Bank's internal core capital sources (authorized capital and retained earnings from prior years) increased both in absolute and relative terms (42.7% and 32.6% in the capital structure, respectively). The growing capital quality means a stronger safety cushion to absorb possible losses and safeguards the Bank customers' interests.

We are pleased to see the Bank's capital adequacy ratio (11.9%) stay close to the average level in Russia's banking sector (12.2%), laying a reliable foundation for an increase in earning assets and the business expansion.

The Bank's loan assets, its second biggest earning asset held steady in 2014 (+1.6%) after a significant decline in the two preceding years, which, given the reduction in other assets, pushed up the share of the loan portfolio in total assets.

Stabilization of the Bank's loan assets and loan management improvements resulted in a lower credit risk, while the lending business remained profitable.

The above-stated is proven by structural improvements of the Bank's loans receivable. The combined share of problem and non-performing loans decreased from 17.5% to 10.0%, while the combined share of prime and subprime loans, on the contrary, increased from 69.0% to 85.3%.

Another positive rating driver is the comfortable net interest spread ratio staying approximately 4%, which means that the Bank's lending and deposit policy is very well-balanced.

Coalmetbank never failed to meet the applicable liquidity and credit risk requirements in 2014. The Bank has stronger-than-average liquidity metrics in terms of the regulatory authority's thresholds in Russia's banking system, which demonstrates the Bank's ability and capacity to fully meet its obligations to clients in different timeframes.

At the same time, the Bank's weaker key balance sheet indicators, operating losses and excessively high share of securities portfolio in assets are working against its rating.

The key balance sheet performance metrics of JSC Coalmetbank looked down in 2014, thus putting pressure on the Bank's rating. Total assets for 12 months of 2014 decreased from RUB 8,914 million to RUB 8,484 million (-4.8%), as did liabilities (from RUB 8,172 million to RUB 7,997 million,-2.2%).

Another point of concern is the Bank's inability to operate at a profit, the 12-month loss before tax reaching RUB 69.9 million in 2014. The Bank also posted losses in most of the quarterly periods; the positive financial result achieved in the fourth quarter is largely attributable to non-systemic earnings qualifying as miscellaneous incomes (the penalty fees on the assignment of receivables).

Another risk factor for the Bank is the dominance of the securities portfolio in its earning assets (55.1%). The losses from securities transactions in the last three years and the high volatility of the securities market generate additional risks of losses.

At the same time, we note that Bank's securities portfolio is composed of bonds most of which are on the Lombard list of the Bank of Russia and are issued by relatively highly rated entities.

It should also be noted that the effect of the constraining drivers was largely factored in the downgrade of the Bank's rating from 'A' to 'B++' in October 2014.

Full Bank name: Joint-Stock Company «Coalmetbank».

Short Bank name: JSC «Coalmetbank».

JSC Coalmetbank has been operating in the market of banking services since 1994. The Bank is licensed by the Central Bank of the Russian Federation, general banking license no. № 2997 as of January 26, 2015. The Bank is a member of Russia's compulsory deposit insurance system, reg. no. 115 as of October 28, 2004.

This press release is based on the Statement of assignment of credit rating to JSC Coalmetbank.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable 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. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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CJSC AK&M Rating Agency

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