The ‘B++’ rating indicates that the Company 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.

The Bank’s credit rating is essentially supported by the qualitative improvements in its balance sheet and operating performance observed in 2012 and continuing this year.

The Bank’s follow-on offering in late 2012 and property appreciation in the first quarter 2013 increased the credit institution’s equity capital 1.5-fold from RUB 309,447 thousand as of January 1, 2012 to RUB 461,490 thousand as of June 1, 2013, which improved the Bank’s equity capital adequacy ratio as of the start of 2013 and catalyzed the growth of other performance indicators. As a result, the Bank’s funding base increased by 30% in 2012 and Q1 2013 (from RUB 2,474,197 thousand to RUB 3,237,323 thousand). Assets improved by 29% (from RUB 2,844,767 thousand to RUB 3,654,268 thousand). Also, the Bank expanded its pool of customers (by 31.1% in 2012, by 2.8% in the first quarter 2013) and the number of loans provided to customers (by 102.41% in 2012, by 6.88% in the first quarter 2013).

In 2012 and the first quarter 2013, the Bank operated above the break-even point. Its pre-tax profit totaled RUB 48,163 thousand in 2012, RUB 8,913 thousand in the first quarter 2013, exceeding the result achieved in Q1 2012 by 8%.

We also appreciate the well-balanced liquid assets and liabilities in terms of maturity as a positive rating driver. More than half of the Bank’s assets and liabilities mature in no longer than 180 days.

In 2011, 2012 and Q1 2013, the Bank raised capital at a rate below the Bank of Russia’s refinancing rate, which contributes to its rating. At the end of the first quarter 2013, the cost of debt was 6.41% per annum, the interest rate on customer deposits was 6.69% per annum.

Over the period under review, the Bank’s liquidity and credit risk ratios stayed within established limits meeting the applicable requirements of the Central Bank of Russia.

At the same time, the rating of Kuznetsky Bank JSC is under pressure of the low equity capital adequacy ratio, a reduction in pre-tax profits and return ratios, shrinking share of net interest margin in the Bank’s net income structure, and major current liquidity ratio fluctuations.

The Bank’s equity capital adequacy ratio is below the average percentage in Russia's banking sector (ranging from 11.6% to 13.6% on most of the reporting dates in 2012 and early 2013 against 14.7% in early 2012, 13.4% as of April 1, 2013 on average in the banking system. As of June 1, 2013, CAR ratio was 11.6%.

While expanding the scale of its passive and active operations in 2012, the Bank failed to resist a drop in efficiency, a negative signal for its rating. In 2012, the Bank’s pre-tax profit was RUB 48,163 thousand against RUB 58,556 thousand the year before. Profitability ratios also decreased in 2012 (return on equity was 11.3%, return on assets was 1.5%, against 18.2% and 2.3%, respectively, in Russia's banking sector). In the first quarter of 2013 the Bank improved its ROE ratio to 11.5%, while ROA remained where it had been at the start of the year (1.5%).

The share of net interest margin in the Bank’s net income structure decreased in 2012, while net incomes from operations with securities and miscellaneous net incomes are contributing increasingly more to the total net income. In Q1 2013, miscellaneous net incomes outpaced other sources of net incomes in growth.

The Bank’s current liquidity ratio lacks stability. Its fluctuations reached 20% between successive reporting dates and 30% over six-month periods. As of June 1, 2013, the Bank’s current liquidity ratio was 71.3%, meeting the applicable requirements of the Central Bank of Russia.

Full name: Kuznetsky Bank Open Joint-Stock Company

Short name: Kuznetsky Bank Open JSC

Kuznetsky Bank Open Joint-Stock Company (CBR license no. 609) has been operating in the market of banking services since 1990. The Bank is licensed to provide banking services involving Russian rubles and foreign currencies (without accepting money deposits from individuals) as of October 4, 2012 and a license to accept ruble-denominated money deposits from individuals as of January 19, 2012. The Bank is a member of the deposit insurance scheme, reg. no. 428 as of January 14, 2005.

Kuznetsky Bank Open JSC located in Penza has a branch network in Penza, Penza region and Cheboksary. The Bank provides all kinds of banking services involving Russian rubles, a limited range of services involving foreign currencies, lends to legal entities and individuals.

This press release is based on the statement of assigning a credit rating to Kuznetsky Bank Open 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
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Moscow, Russia
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Press release by: S.V. Avdoshin
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