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, JSC Izhcombank qualifies as a medium-sized Russian credit institution in terms of the amount of business. Apart from the HQ, the Bank's branch network comprises 21 satellite offices, 2 operational offices and 4 stand-alone cash desks. The bank is operating in two regions of the Russian Federation: the Udmurt Republic and Perm Krai. The bank provides all types of services involving Russian rubles and foreign currencies to legal entities and individuals. JSC Izhcombank is in the 200-300 range among Russian banks in terms of assets and equity capital.

The credit rating is essentially supported by an increase in the key balance sheet metrics (deposits of clients, highly liquid assets), low funding base concentration within major depositors, persistently high quality of assets, and profitable operations.

We appreciate the stability and improvements in customer deposits, the key source of funding for the Bank. Over the period from September 1, 2015 to September 1, 2016, personal deposits increased by RUB 1.9 billion (35.6%), deposits to corporate clients by RUB 195.5 million (12.5%).

It should also be noted that the current concentration of obligations indicates low dependence on major clients. The maximum share of one group of depositors is below 2%.

Seeing as the credit institution focuses on retail lending, the comfortable liquidity position of JSC Izhcombank should be regarded as a positive rating driver. In the last year, the Bank's highly liquid assets increased by RUB 1 billion (+71.6%) to 23% of the total amount of assets. The Bank's acid test and current liquidity ratios (N2 and N3) reach 104.25% and 148.96%, respectively, which is considerably above the minimum regulatory levels.

The Bank keeps the quality of its loan portfolio high. Loans of quality grades 1 and 2 (top quality loans) still account for most of the loan book (27.7% and 53.6%, respectively). The share of problem and non-performing loans is 8.2% against 9.8% on average in the banking sector of Russia.

The overdue debt percentage stays relatively low at the Bank. The share of loan arrears in the Bank's loan portfolio is 4.7%, which is below the average level in Russia's banking sector (5.9%).

The Bank remains a profitable credit institution: for the 8-month period in 2016, its net profit amounted to RUB 30.9 million, which already exceeds the 12-month result in 2015. We also regard the Bank's stable ability to generate operating income as a positive rating driver. The Bank's total income was dominated by net interest incomes, net fee & commission incomes; therefore, the Bank's profitability does not depend on non-stable and risky income sources.

At the same time, the high dependence on retail deposits and a moderate level of provisions are working against the Bank's rating.

As previously noted, the Bank's asset-side transactions are mainly financed out of the funds raised from the population, their share in the period under review staying in the 77-79% range. The domination of one funding source impairs stability of the Bank's funding system and is therefore considered as a risk factor.

The moderate level of provisions also puts certain pressure on the rating. The Bank's provisions for doubtful, problem and non-performing loans are below the respective average levels (the total percentage of provisions across the loan portfolio being 6.8% against 8.8% in the banking system of Russia). That said, we note the Bank's loan portfolio security, the collateral being twice above the amount of the loan portfolio.

Full Bank name: Joint Stock Company Izhcombank

Short name: JSC Izhcombank

JSC Izhcombank has been operating in the market of banking services since 1990. The bank was registered by the Bank of Russia under no. 646 as of October 30, 1990. The Bank possesses a license to provide banking services involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of February 2, 1999 and a license to accept ruble-denominated money deposits from individuals as of February 2, 2015. The Bank has been a member of the deposit insurance system since October 28, 2004, DIS registration no. 106.

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, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until October 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 JSC Izhcombank. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. August 14, 2015.

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.

JSC AK&M Rating Agency

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www.akmrating.ru

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