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

BANK ELITA qualifies as a small-scale regional credit institution (in terms of the amount of business); its majority shareholder is Russia's Kaluga region represented by the Ministry of Economic Development of Kaluga region (holding an 96.9% equity stake in the Bank). The branch network of BANK ELITA, apart from its HQ, comprises 5 satellite offices in Kaluga region and 2 operational cash desks in Kaluga. The Bank's core activities include lending to small and medium-sized businesses, management of accounts of government entities and attraction of retail deposits.

The credit rating is essentially supported by the good capital adequacy and quality, the favorable net income structure, the high provisions on loans.

The Bank's equity capital is traditionally dominated by Tier 1 capital (99.7%). As of June 1, 2015, the capital quality ratio (Tier 2 to Tier 1 capital ratio) was 0.3%, easily meeting the Central Bank of Russia's applicable requirement (no more than 30%). In the third quarter of 2014, the authorized capital of the credit institution was increased by RUB 300 million. Therefore, the Bank's equity capital grew by 62.3%, with ensuing improvements in capital adequacy ratios which stayed in the 17.4%-19.4% range over the period from September 1, 2014 to June 1, 2015, appreciably above the average levels in Russia's banking sector.

The main sources of the credit institution's net incomes are its net interest earnings (excluding reserves) and net fee & commission incomes, indicating the Bank's commitment to classical banking. The extremely low relative weight of incomes from securities transactions (0.0%) and incomes from forex transactions (0.6%) makes the Bank almost immune to currency risks and stock market risks. In 2014 and the first quarter of 2015, the Bank's net interest incomes (excluding reserves) increased by 8% and 24% year-on-year, respectively.

The Bank's loan provisioning ratio (23%) is far above the average percentage in Russia's banking system (7.3%). As of June 1, 2015, total provisions for possible loan losses amounted to RUB 584 million, 48% above the amount of overdue debt.

At the same time, the loan book deterioration, the negative profitability, the worse balance sheet indicators, the low level of highly liquid assets are putting pressure on the credit rating of BANK ELITA.

The negative outlook on the rating reflects our concern about the substantial degradation of the loan portfolio. Since our previous review, the amount of overdue debt grew by 8.3 p.p. Just as before, most of the loan arrears exceed 180 days (91% as of June 1, 2015), which is a definitely negative signal. As a result, the Bank's provisions for possible losses increased more than twice against 2013, which reduced its total net incomes four times. Subsequently, the Bank posted a 12-month loss of RUB 90.6 million in 2014

Since the start of 2014, the key balance sheet indicators of the Bank have been on a negative trend. In the first quarter of 2015, the liabilities of BANK ELITA decreased by RUB 540 million (-21.5%), primarily due to an outflow of corporate deposits. As a result, the Bank's total assets decreased by RUB 537 million (-17.6%). In particular, net loans receivable decreased by RUB 423.4 million, deposits with the Central Bank of Russia by RUB 232.5 million.

For five months of 2015, the Bank's highly liquid assets decreased from RUB 405 million to RUB 160 million (2.5 times). As of June 1, 2015, the share of highly liquid assets in total assets was 6.75%, far below the average value in the banking system of Russia (11.2%).

Official Bank name: BANK «ELITA».

The Bank possesses a license to provide banking services involving Russian rubles and foreign currencies (without accepting money deposits from individuals) and a license to accept ruble- and foreign currency-denominated money deposits from individuals, both issued on April 1, 2014. The Bank has been a member of the deposit insurance system since November 25, 2004, DIS registration no. 220.

AK&M Rating Agency assigned a credit rating to BANK ELITA for the first time on June 15, 2009. The last rating action in relation to the Bank was taken on July 28, 2014. All rating action announcements are available on the akmrating.ru website.

The rating is valid until July 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 estimation purposes, we completely rely on the reliability of information provided by the client. 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 assignment was based on 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

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