The 'B++' rating indicates that JSC International Merchant Bank 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 Bank's growing equity capital and high capital adequacy, strong liquid asset position, and low percentage of loan arrears in the loan portfolio as essential positive rating drivers.

The Bank expanded its equity capital by 10.4% in 2012 and further improved it by 15.7% in 2013. As of November 1, 2013, the Bank's equity capital reached RUB 650.01 million. The growth was mainly driven by the higher retained earnings in 2012, the property revaluation surplus in 2013. As of November 1, 2013, retained earnings from prior years accounted for more than 50%, ­ property revaluation for ca. 24% of the Bank's equity capital.

The Bank's capital adequacy stays high. On most of the monthly reporting dates in 2013, CAR floated in the 19-21% range, hitting the lowest value (14.5%) on February 1, 2013. JSC International Merchant Bank's capital adequacy ratio is appreciably higher than the average ratio in Russia's banking sector.

JSC International Merchant Bank maintains fairly high acid test and current liquidity ratios (46.6% and 346.7%, respectively, as of November 1, 2013). The acid test ratio is far above the regulatory minimum, the current liquidity ratio exceeds the regulatory minimum and average percentage in Russia's banking sector.

The high equity capital adequacy ratio and strong liquid asset position of JSC International Merchant Bank are contributing to its credit status.

We also appreciate the low percentage of loan arrears (0.8% at the beginning of 2013, 0.6% as of November 1, 2013, i.e. less than 1%). The Bank's loan portfolio is dominated by loans to legal entities (ca. 88%). Quality class 1 loans account for about 15%, quality class 2 loans for about 50% of the loan book.

At the same time, the rating is under pressure of the Bank's loss-making activity, capital quality erosion, unimpressive growth of assets and liabilities in 2013.

In 2013, the Bank operated in the red, with negative pre-tax profits and net profits in the first and second quarters of 2013. At the end of six months 2013, net loss amounted to RUB 72.6 million, although the Bank reduced it to RUB 37.1 million at the end of the 9-month period. This weak result is attributable to the Bank's provisions for possible loan losses.

Until March 2013, JSC International Merchant Bank's capital quality ratio (Tier 2 to Tier 1 capital ratio) did not exceed 30% meeting the guidelines of the Central Bank of Russia, but rose to above 39% in the Bank's report as of March 1 and continued to grow, reaching a peak value of 45.8% on July 1, 2013. This major capital quality degradation is a result of the property appreciation in the supplementary capital and current year's losses affecting the Bank's core capital.

The Bank's assets and liabilities failed to increase much over the nine-month period in 2013 (compared with their hefty growth by 37% and 36%, respectively, in 2012), their combined value even looking down in the first two quarters. The share of net loans receivable in assets and the share of corporate and individual deposits in liabilities have been on a downward trend since the start of 2013. By October 1, 2013, the Bank's assets increased by ca. 4%, liabilities by 6% against the start of the year. The asset growth was mainly driven by investments in securities, the growth of liabilities by more borrowings from the Central Bank of Russia.

Bank name: Joint Stock Company International Merchant Bank.

Registration no. 2609 of the Bank of Russia assigned on December 19, 1993.

The Bank possesses a license for banking operations involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of April 28, 1999, and a license for accepting money deposits denominated in Russian rubles and foreign currencies from individuals, as of April 28, 1999. The Bank has been operating within the deposit insurance scheme since December 2, 2004, registered in the DIS register under no. 246.

Headquartered in Omsk, JSC International Merchant Bank has one branch in Angarsk city (Irkutsk region).

The Bank provides all types of banking services involving Russian rubles and foreign currencies to legal entities and individuals, lends money and invests in securities.

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

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

CJSC 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.

CJSC 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.
Email: anna_k@akm.ru