The 'A' rating indicates that JSC Izhcombank qualifies as a highly creditworthy borrower. 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 Banks and their Debt Instruments rev. August 14, 2015.

Headquartered in Izhevsk city, the Udmurt Republic, JSC Izhcombank has a network of outlets in two regions of Russia. The Bank provides the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

JSC Izhcombank qualifies as a medium-sized Russian credit institution in terms of the amount of business. The credit institution's position in the Russian market of banking services can be regarded as relatively stable. As of August 1, 2015, the Bank ranked in the 200-300 range of the Russian banks in terms of the size of assets and net profit.

The Bank's credit rating is essentially supported by the high capital adequacy, the steadily profitable operations, the optimal structure of incomes and the acceptable level of highly liquid assets.

The Bank's equity capital metrics are fairly comfortable and improving. Over the period from July 1, 2014 to August 1, 2015, equity capital of JSC Izhcombank increased by 4.7% to RUB 1,074.9 million.

On most of the reporting dates, the capital adequacy ratio exceeded the average level in the banking sector of Russia staying in the 12.4-14.6% range, resulting in a high capacity for the development of business with the aim of boosting aggregate incomes.

Izhcombank stayed profitable in all the quarterly periods of 2014-2015 reviewed. While the Bank's 6-month profit decreased by 29.2% compared with the same period in 2014, the underperformance was not as dramatic as the decline hitting the banking sector as a whole (-88.5%). We also appreciate the relatively steady and higher-than-average level of return ratios against the backdrop of a negative trend in the banking sector of Russia.

We are pleased to see Izhcombank keep its earnings well-structured. The Bank's net incomes mainly arose from net interest, fee & commission incomes, a relatively stable component.

The financial result from operations in volatile currency and securities markets did not have a considerable impact on aggregate incomes. Besides, the Bank's net fee & commission incomes are commensurate with its net interest incomes, indicating a high diversification of income sources.

The relatively high level of readily obtainable assets has contributed to the credit rating of Izhcombank. On all reporting dates in 2014-2015, the ratio of highly liquid assets to total assets did not fall below 17%. Furthermore, the average percentage of highly liquid assets in relation to total assets for the last 6 months exceeds 20%, which implies lower liquidity risks should a stress scenario play out.

At the same time, the high dependence on retail deposits, the growth of overdue loans and the scarce provisions are working against the Bank's rating.

The continued growth of dependence of the Bank's funding base on retail borrowings poses a risk for the Bank. Deposits of private customers kept growing both in 2014 and in the first half of 2015 increasing by approximately 16% year-on-year. At the same time, the Bank's liabilities decreased by 3.3% in 2015, which accelerated the growth of the retail deposits percentage. As a result, the already high share of private clients' deposits increased more reaching 76.9%.

The Bank's loan portfolio has an uncomfortably high percentage of overdue loans (5.5% as of August 1, 2015) exceeding the average percentage in Russia's banking sector on most of the reporting dates. Furthermore, the share of past-due loans more than 30 days in arrears in on an obvious upward trend and has already reached a peak of 3.9% of the Bank's total loan book.

The low level of provisions exerts pressure on the rating of Izhcombank. The Bank's current provisions are below both the overdue loans as a whole and loans more than 30 days in arrears. Besides, the Bank's provisions decreased from 3.6% as of July 1, 2014 to 3.3% as of August  1, 2015, despite an increase in the combined share of poor quality loans.

Full Bank name: Joint Stock Company «Izhcombank»

Short name: JSC «Izhcombank»

JSC Izhcombank has been active in the market of banking services since 1990. JSC Izhcombank possesses general banking license 646 issued by the Central Bank of Russia on February 2, 2015. The Bank is a member of the Deposit Insurance System (no. 106 as of October 28, 2004).

AK&M Rating Agency assigned a credit rating to JSC Izhcombank for the first time on May 14, 2007. The last rating action in relation to the Bank was taken on October 2, 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 Bank's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Bank. 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 credit rating to JSC Izhcombank.

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.

AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

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