The ‘B++’ rating indicates that Bank VENETS, JSC qualifies as a sufficiently reliable borrower. Risk of a delay in meeting liabilities is moderate, restructuring risk for a loan / part of a loan is insignificant.

We regard the high adequacy, quality and growth of equity capital, favorable net income structure and well-balanced loan portfolio as essential positive rating drivers for the Bank.

The Bank maintains a high level of capital adequacy. In April-June 2013, its capital adequacy ratio stayed about 4 percentage points above the average value in Russia's banking sector. As of June 1, 2013, CAR was 17.82%.

The quality of capital at Bank VENETS meets the guidelines of the Central Bank of Russia, Tier 2 to Tier 1 capital ratio staying below 30% (28.2% as of April 1, 2013, 25.2% as of June 1, 2013). The authorized capital and additional paid-in capital contribute appreciably to the Bank’s equity capital (21.5% and 17.6%, respectively).

We also appreciate the Bank’s considerably higher equity capital compared with the start of 2012 as a positive argument for the credit rating.

As of July 1, 2013, the Bank's equity capital amounted to RUB 583.83 million increasing by RUB 153.96 million (35.8%) since the start of the year. The equity capital increase in 2012 was driven by the growing authorized capital, additional paid-in capital and retained earnings. In the first half of the year 2013, equity capital shrank by 4.2% in the wake of lower retained earnings and a reduction in the subordinated loan.

The Bank benefits from a favorable net income structure: net interest margin after provisions for losses accounts for about 60%-70%, net fee and commission income for 20% to 30% of its total net income.

Bank VENETS, JSC has a well-balanced loan portfolio: in recent reporting months, loans of quality grade 2 account for about 70%, quality grade 3 loans for approximately 29% of the total loans receivable. The Bank keeps loan arrears low (about 1.5% of the loan portfolio). As of July 1, 2013, provisions for losses reached 7.3% of the loan arrears.

The Bank’s achievements in the way of net income structure and loans in arrears contribute to its rating.

At the same time, the rating is under pressure of low profitability and return ratios, weaker liquidity position, shrinking customer base and lower legal entities' deposits.

The Bank’s profit performance went down in 2012 and the first half of 2013. In 2012, Bank VENETS, JSC posted a pre-tax profit of RUB 56.94 million (14.7% below the previous year’s result). In the first half of the year 2013, the Bank’s pre-tax profit totaled RUB 471 thousand (according to the preliminary report). The changes in provisions for losses have a considerable impact on the Bank’s earnings.

The weaker profit performance brought down the Bank’s return on assets and equity (2.1% and 11.0%, respectively, on April 1, 2013, below the average levels in Russia's banking sector). A strong downturn in the ROA and ROE ratios may be expected in the first half of the year 2013.

The Bank's acid test and current liquidity ratios have been fairly low in 2013. These ratios are below the average levels in Russia's banking sector and were found to be critically low on some reporting dates (for example, 41.27% and 57.63%, respectively, on April 1, 2013, against 67.2% and 87.6%, respectively, in the banking sector). However, the Bank has never failed to meet the liquidity requirements.

The underwhelming profitability and weak liquidity position are working against the Bank’s rating.

In 2012 and early 2013, the Bank faced a reduction in the number of accounts and lower balances of legal entities. The number of accounts decreased by approximately 8% in 2012, by 3% for the first five months in 2013. The share of legal entities’ deposits in the Bank’s liabilities decreased by 7.1% in 2012, although rebounding up 4.4% in the first quarter of 2013 against the start of the year.

Bank name: Bank VENETS, JSC.

Registration number provided by the Bank of Russia: 524 as of October 19, 1990.

The bank possesses a license for banking operations involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of July 30, 2012, and a license for accepting money deposits denominated in Russian rubles and foreign currencies from individuals as of July 30, 2012. The Bank participates in the compulsory deposit insurance scheme since October 14, 2004, registration no. 77.

Headquartered in Ulyanovsk, the Bank has a branch network in Ulyanovsk and Ulyanovsk region.

The Bank provides all types of services involving Russian rubles and foreign currencies to individuals and legal entities including lending services to individuals and legal entities.

This press release is based on the statement of assigning a credit rating to Bank VENETS, JSC.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Bank.

AK&M Rating Agency will not incur any responsibility 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 is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC AK&M Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.M. Krachkovskaya
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18