The 'A' rating indicates that the Guarantee Fund of Vladimir region qualifies as a highly reliable guarantee institution. The full or partial default risk is low. The rating assignment was based on the Credit Rating Methodology for Guarantee Institutions rev. March 3, 2015.

The Guarantee Fund of Vladimir region is an element of the regional small and medium-sized business support infrastructure in Vladimir region. The Fund was established subject to order 341-p of the acting Governor of Vladimir region as of June 23, 2015. The core activity of the Guarantee Fund of Vladimir region is provision of sureties for obligations (credits, loans, lease contracts, etc.) of the SME businesses registered in the region.

The rated Fund was established as a successor of the Fund of development of small and average business of Vladimir region (FDSA). The rights and obligations of FDSA under the previously concluded contracts (surety contracts, deposit agreements, etc.) were transferred the Guarantee Fund of Vladimir region.

The rating assigned to the Fund reflects the growing amount of sureties, a fairly conservative approach to sharing credit risks with partners, good diversification of the sureties provided across major counterparties, high quality of the guarantee coverage.

In 2015, the guarantee institution provided sureties for a total amount of RUB 352.3 million (+89.3% year-on-year), which enabled businesses to borrow RUB 813.7 million from partner banks (97.4% above the 2014 level). That said, the Fund pursues a fairly conservative policy of sharing risks with partners: the guarantee institution's obligations secure 43.3% of the total amount of SME businesses' total obligations.

The Fund has concluded effective surety agreements with 15 credit institutions. The biggest contributors to the Fund's surety portfolio are guarantees provided for loans taken from Promsvyazbank PJSC, Sberbank of Russia and JSC Rosselkhozbank (RusAg) together accounting for 50.5% of the total portfolio. As a whole, the Fund maintains relations with a wide range of partners, keeping the sureties well-diversified across counterparties.

One of the essential positive rating drivers is the high reliability of financial investments. Based on competitive bidding results, the guarantee fund's resources were deposited with 5 credit institutions ranked among the top 50 Russian banks in terms of asset size, with ratings corresponding to the 'A+' or higher on the AK&M Rating Scale. The maximum relative share of deposits with one bank is 30.9%, which is below the upper threshold set by the regulatory authority.

The Fund's rating is constrained by an increase in the amount of payment obligations discharged and poor diversification of the surety portfolio in terms of amount and maturity.

The growing amount of payment obligations discharged in relation to the sureties provided, combined with low efficiency in recovering money through applicable recourse procedures, exerts pressure on the rating of the Guarantee Fund of Vladimir region. In 2015, the guarantee institution effected 3 payments for a total amount of RUB 16.3 million. This year, the Fund also discharged payment obligations in the amount of RUB 4.5 million under a surety contract. As a result, the total amount of payments under surety contracts reached RUB 46.1 million increasing by 82.6% since our previous review. The guarantee institution recovered RUB 1.8 million of that amount. That said, the Fund's loss ratio, despite an increase, remains satisfactory (2.4%).

The structure of the Fund's current surety portfolio in terms of amount and maturity cannot be called well-balanced. The sureties exceeding RUB 15 million have a considerable 47% share in the portfolio. More than half of the total liabilities (50.6%) mature in more than 5 years. This, in AK&M Rating Agency's view, increases risks related to the possible loss of borrowers' creditworthiness in the long term and the maximum amount payable on the claims of credit institutions.

Full name: the Guarantee Fund of Vladimir region

Short name: GF VR

The Guarantee Fund of Vladimir region was registered on August 4, 2015. Its founder is Vladimir region represented by the Department of Business Development, Trade and Services, a structural unit of the regional government. Over its existence, the guarantee institution has concluded 279 surety agreements exceeding RUB 1.7 billion, which enabled small and medium-sized businesses to take out RUB 3.7 billion in loans. As of January 1, 2016, the Guarantee Fund of Vladimir region's capitalization was RUB 464.7 million, its surety portfolio amounted to RUB 669.2 million.

AK&M Rating Agency earlier assigned a reliability rating to the Fund of development of small and average business of Vladimir region (FDSA) and state autonomous institution 'SME Development and Guarantee Fund', the predecessor of the Guarantee fund of Vladimir region. The rating was assigned for the first time on January 21, 2013. The last rating action was taken on February 11, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until March 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the guarantee institution's rating are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the guarantee institution. 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 the Guarantee Fund of Vladimir region and the Credit Rating Methodology for Guarantee Institutions rev. March 3, 2015.

The rating, along with any information and conclusions provided in this report, only conveys our opinion and shall not be construed as a recommendation to lend money resources to the Fund or to seek its guarantees and sureties.

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.