The 'B++' rating indicates that Bank VENETS, JSC 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 Instruments rev. February 25, 2016.

The Bank is headquartered in Ulyanovsk. Its regional network includes 4 satellite offices in the regional capital and 5 satellite offices in Ulyanovsk region. Bank VENETS, JSC is a universal financial institution providing a wide range of banking services.

Bank VENETS, JSC is a relatively small Russian credit institution in terms of assets, equity capital and the amount of business. As of September 1, 2016, the Bank ranked in the 300-400 range among Russian banks (332nd and 333rd positions, respectively).

The Bank's credit rating is essentially supported by improvements in the key balance sheet metrics, higher quality of the structure of loans receivable, a lower percentage of overdue loans, high capital adequacy and a good share of highly liquid assets.

We appreciate steady improvements in the Bank's key balance sheet metrics. In 2015 and in the 12-month period ending on July 1, 2016, assets and liabilities of Bank VENETS, JSC increased by 18% and 15%, respectively, exceeding the average levels in the Russian banking sector. The growth of the Bank's net loans receivable was commensurate with the asset growth rate, which contributed to the credit institution's income base growth.

While the loan portfolio kept growing, its quality also improved as the combined share of problem and non-performing loans decreased notably. Over the period from August 1, 2015 to September 1, 2016, the amount of poor-quality loans (quality grades 4 and 5) in absolute terms shrank 1.5 times, their share in the Bank's loan portfolio decreased to 7.65% (1.5 p.p. below the average level in Russia's banking sector. At the same time, the dominance of loans of quality grades 1 and 2 in the loan portfolio increased to 87.6%.

The borrowers' stronger financial standing brought about loan servicing discipline improvements. The amount of loans in arrears in the period under review decreased 1.7 times, its share in the loan portfolio going down from 11.8% to 7.1%.

Another positive rating driver, in AK&M Rating Agency's view, is the Bank's high capital adequacy ratio, its average level exceeding 20% this year, which ensures the Bank's relatively high capacity to expand asset-side transactions in the medium term and full protection against possible losses.

Seeing as the credit institution focuses on retail lending, the fairly high level of its highly liquid assets should be regarded as a positive rating driver. For the last 12 months since our previous review, the percentage of highly liquid assets never decreased below 10.8%, the average level being 13.8%. The highly liquid assets are an effective insurance instrument mitigating possible losses and ensuring protection of depositors' interests.

At the same time, the Bank's rating is constrained by its loss-making activity this year, a low level of security (collateral) for the Bank's loan portfolio and growing risks attributable to major creditors and depositors.

One of the key rating constraints is the Bank's unprofitable operations in 2016. After a positive financial result in the first half of this year, Bank VENETS, JSC posted a notable loss in the first two months of the third quarter. As a result, as of September 1, 2016, the Bank's loss amounted to RUB 69.0 million. For reference, the Bank earned a positive result for the 8-month period in 2015, its profit approaching RUB 10 million then.

The low level of security (collateral) for loans also puts pressure on the rating. As of the quarterly reporting dates in 2016, the percentage of loan collateral in the form of property and securities was below 78%, notably below the average level in 2015 (94%), which implies higher risks of financial losses in case of the borrowers' insolvency.

Another point of concern is substantially higher concentration of the Bank's obligations across groups of depositors. The maximum share of liabilities attributable to one group of depositors reached 14.55%, the group of ten biggest depositors accounted for 17.44% of the Bank's liabilities.

Official Bank name: Bank VENETS, JSC

Bank VENETS, JSC has been active in the market of banking services since 1990. The Bank was registered by the Bank of Russia on October 19, 1990, reg. no. 524. Bank VENETS, JSC possesses a license to provide banking services involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of December 19, 2014 and a license to accept ruble-denominated money deposits from individuals as of December 19, 2014. The Bank has been a member of Russia's deposit insurance system since October 14, 2004, DIS registration no. 77.

AK&M Rating Agency assigned a credit rating to Bank VENETS, JSC for the first time on November 18, 2010. The last rating action in relation to the Bank was taken on July 1, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until September 2017. 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 Bank VENETS, JSC.

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.

AK&M Rating Agency

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www.akmrating.ru

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