The 'B++' rating indicates that PJSC Sotsinvestbank 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 rating was assigned based on the Credit Rating Methodology for Banks and their Debt Instrument rev. February 24, 2015.

The rating downgrade reflects the credit institution's aggressive policy in accepting retail deposits, the lower diversification across funding sources, the paucity of highly liquid assets, the unimpressive quality of the interbank loan portfolio.

This year, PJSC Sotsinvestbank is committed to borrowing aggressively from private clients. In January-May 2015, the Bank's portfolio of retail time deposits grew by 45.9% to RUB 8,992.4 million.

Besides, the deposit portfolio underwent dramatic structural changes in terms of maturity. The share of time deposits maturing in more than 180 days decreased from 61.2% at the start of the year to 28.7% as of June 1, 2015. On the contrary, the short-term component of retail borrowings (maturing in less than six months) has reached 71.2% and is currently dominating the portfolio of private deposits.

The structural changes in the deposit portfolio result from the high interest rates PJSC Sotsinvestbank is ready to pay on deposits. The Bank's 3-6 month retail deposit products are among the top 3 most appealing offers in the market (the yield rate being 14.8%). As a result, the cost of retail funding remains fairly high at 15.1%.

We tend to regard the aforementioned factors as a point of concern, seeing as their combined effect impairs the credit institution's financial soundness.

The outstripping growth of retail borrowings has impaired the diversification of funding sources at PJSC Sotsinvestbank. The main fast-growing component of the Bank's retail funding base increased to 73.7% of total liabilities as of June 1, 2015. 

The dominance of one funding source which is naturally subject to certain volatility, implies higher risks of insolvency should a stress scenario play out.

Another rating constraint is the reduction in highly liquid assets from 9.1% to 7.0% for five months of 2015, indicating higher liquidity loss risks. Of special note is that the percentage of highly liquid assets at the Bank is almost 1.6 times below the average level in Russia's banking sector.

It should also be noted that the Bank's assets placed with credit institutions reach RUB 7,609.5 million accounting for approximately 82% of the whole loan portfolio. Most of the loans (80.2%) are provided to unrated banks, which is why we regard the Bank's interbank loan portfolio quality as low.

Full Bank name: public joint stock company «Sotsinvestbank»

Short name: PJSC «Sotsinvestbank»

OJSC Sotsinvestbank has been operating in the market of banking services since 1990. The Bank possesses general banking license no. 1132 as of March 17, 2015 issued by the Central Bank of the Russian Federation.

AK&M Rating Agency assigned a credit rating to OJSC Sotsinvestbank for the first time on June 12, 2012. The last rating action in relation to the Bank was taken on May 13, 2015. All rating action announcements are available on the website akmrating.ru.

The rating is valid until May 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Bank's creditworthiness are revealed.

For calculation purposes, we completely rely on the reliability of information provided by the rated company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

The rating was assigned based on the results of monitoring the current credit rating assigned to OJSC Sotsinvestbank and the Credit Rating Methodology for Banks and their Debt Instrument rev. February 24, 2015.

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.

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) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

AK&M Rating Agency

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www.akmrating.ru

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