The 'A' rating indicates that the State Fund of the Kemerovo Region for Business Support qualifies as a highly creditworthy microfinance institution. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment was based on the Credit Rating Methodology for Microfinance Institutions rev. January 23, 2014.

The credit rating is essentially supported by the microloan portfolio expansion, the good structure of loans and the microfinance institution's ability to meet the applicable regulatory requirements in relation to the standard performance metrics.

The financial support to small and medium-sized businesses in the region provided by the Fund may be recognized as highly efficient. The Fund has been expanding its portfolio of microloans for the last four quarters. In January-June 2015, the amount of the microloan portfolio increased by 5.9% (+RUB 5.0 million) against the same period in 2014.

Besides, the microloan portfolio is well-diversified across industries. Substantial shares of the portfolio are attributable to small business entities engaged in the manufacturing sector (36% of the portfolio) and in the retail sector (22%). It is important to note that the share of manufacturing sector in the total microloan portfolio increased by 11% for the last 12 months.

Most of the standard performance indicators stayed at acceptable levels in the period under review. As of July 1, 2015, the Fund's lending efficiency was estimated at 92.6% increasing by almost 9 p.p. for the 12-month period. At the start of Q3 2015, operational efficiency ratio was 4.8%.

The Fund's final rating is essentially constrained by the high percentage of overdue microloan debt.

Over the last six quarters, the percentage of overdue microloans and the portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development's standards) reached maximum levels in the first quarter of 2015. As of April 1, 2015 the percentage of microloans in arrears and the PAR ratio reached 19.9% and 12.9%, respectively. In the second quarter, the share of overdue microloans decreased by 8.4 p.p. to 11.5% as of July 1, 2015, PAR ratio by 5.9 p.p. to 7.04% as of the same date. At the start of the second half of 2014, delays in payments on microloans exceeded 181 days; the third quarter of 2014 brought new arrears, with payment delays from 31 to 90 days, indicating that the borrowers' solvency declined dramatically in the second half of 2014. Of special concern is that loans with payment delays exceeding 360 days account for a substantial part of arrears in this data extract. There is a high probability that the Fund will be forced to write off some of these loans in the short term, resulting in additional losses and a weaker financial performance as a whole.

Fund name: The State Fund of the Kemerovo Region for Business Support

The Fund has been providing microfinance services since 2011, registration number 6110742000412 in the state register of microfinance institutions as of August 24, 2011.

AK&M Rating Agency assigned a credit rating to the State Fund of the Kemerovo Region for Business Support for the first time on August 29, 2014. All rating action announcements are available on the akmrating.ru website.

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

For estimation purposes, we completely rely on the reliability of information provided by the 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.

This press release is based on the Statement of assignment of a microfinance institution credit rating to the State Fund of the Kemerovo Region for Business Support and the Credit Rating Methodology for Microfinance Institutions rev. January 23, 2014.

The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion 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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