The 'A' rating indicates that PJSCB Primorye qualifies as a highly reliable 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. February 25, 2016.

Headquartered in Vladivostok, the Bank has a regional network comprising 18 satellite offices in Vladivostok, Artyom, Ussuriysk, Nakhodka and the settlement of Vrangel. PJSCB Primorye is a universal financial institution providing services to individuals, corporate clients, and banks.

PJSCB Primorye qualifies as a large regional bank. As of October 1, 2016, the Bank ranked 95th in terms of asset size, 122nd in terms of equity capital among Russian banks.

The Bank's credit rating is essentially supported by a high level of equity, profitable operations, improvements in the key balance sheet performance indicators, a good level of highly liquid assets and low concentration of liabilities across groups of depositors.

In the 12-month period preceding the reporting date (October 1, 2016), the Bank's equity capital was on a steady upward trend increasing by RUB 310.5 million (+11.7%) to RUB 2,968.7 million. As a result, the capital adequacy ratio of PJSCB Primorye reached 14% exceeding the average percentage in the banking sector of Russia by 2.5 p.p., which ensures the Bank's acceptable capacity to expand asset-side transactions.

We also appreciate the profitable operations of PJSCB Primorye. As of October 1, 2016, the Bank's net profit amounted to RUB 234.6 million. The financial result was positive both in the first half and in the third quarter of 2016.

After a downturn in the first quarter of 2016, the Bank's key balance sheet performance indicators stayed on a growth trajectory in the following 6 months of 2016. The credit institution's assets increased by almost 8%. As a result of growing corporate deposits, the Bank's liabilities increased by 4%, which brought about an 8% increase in total assets. 

Given that the Bank's liabilities are dominated by deposits of clients (primarily physical persons), a considerable stock of highly liquid assets contributes to its financial viability, which we regard as a major positive rating driver. The percentage of highly liquid assets never fell below 12% staying at 21% on average, which is far above the level in the Russian banking sector.

The large proportion of personal deposits keeps concentration of liabilities across the groups of depositors relatively low. The maximum percentage of liabilities attributable to one group of depositors on the reporting date (October 1, 2016) decreased to 3.84%, while ten largest depositors account for no more than 15%.

At the same time, the Bank's rating is constrained by a high percentage of overdue loans and strong dependence on retail deposits.

The share of overdue loans remains uncomfortably high being notably above the average level in the banking sector. The structure of overdue loans is imbalanced towards payment delays exceeding 180 days, which implies higher risks of the borrowers' possible defaults.

We also regard the credit institution's considerable dependence on deposits of private clients as a risk factor. In the period from October 1, 2015 to October 1, 2016, retail deposits increased by almost 10%, their share in the Bank's liabilities approaching 80%. Besides, about 20% of the funds are deposited on current accounts, which reduces funding stability as a whole.

Full Bank name: Public joint-stock commercial bank «Primorye»

Short name: PJSCB «Primorye»

PJSCB Primorye has been operating in the market of banking services since 1994. The Bank of Russia assigned it registration number 3001 as of December 11, 2015. The Bank is a member of Russia's deposit insurance system (no. 147 as of November 4, 2004).

AK&M Rating Agency assigned a credit rating to PJSCB Primorye for the first time on November 24, 2010. The last rating action in relation to the Bank was taken on July 15, 2016. All rating action announcements are available on the akmrating.ru website.

The rating is valid until November 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 JSCB Primorye.

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

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

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