CJSC AK&M Rating Agency affirmed the guarantee institution rating of Guarantee Fund of Credit Support of the Republic of Mordovia on the national scale at 'A', tier 3, with a stable outlook.

The 'A' rating indicates a high degree of reliability of the guarantee institution. Risk of a delay in meeting liabilities is low.

Autonomous institution 'Guarantee Fund of Credit Support of the Republic of Mordovia' (GFCS RM) is one of the key elements of the regional SME development infrastructure. The Fund's mission is to provide guarantees for loans and other debt obligations of SME businesses registered in the Republic of Mordovia, where collateral coverage is insufficient.

The guarantee institution's rating reflects its high key performance indicators in respect of raising funds required for the maintenance and further development of the SME sector in the region.

Since its inception (mid-2009), the Fund has provided 145 sureties for a total of RUB 567 million, with the result of raising RUB 716 million in extra-budgetary funds for the financing of SME businesses. The surety commitments assumed under the contracts in force as of January 1, 2014 totaled RUB 310 million, which is fairly high, given the number of small businesses in the region. The guarantee capital multiple is 146%, an evidence of the highly efficient use of budgetary resources, while also putting the Fund in a position to further expand its surety portfolio and improve its KPIs.

The Fund's sureties are well diversified in terms of the sizes and deadlines of the contracts; the sectoral breakdown of its customers generally corresponds to the structure of the loans provided to legal entities and individual entrepreneurs in the region.

The main source of income for the Fund (about 90%) is the interest on deposits placed with credit institutions based in the Republic of Mordovia and with branches of central banks. In 2013, this interest income grew by 17.4% resulting in an increase in net profit by 11.6%, return on assets by 0.3 p.p. At the same time, the Agency notes the high concentration of the fund's financial investments, the largest counterpart accounting for ca. 34% of the total amount of deposits.

The key negative rating drivers for the guarantee institution are the shrinking volume of support for SME businesses and a significantly higher loss ratio.

In 2013, the fund provided only 22 sureties against 40 the year before, the amount of commitments assumed decreasing by 36%. For the first time in the Fund’s history, its surety portfolio declined (by ca. 3% in 2013 against a 34% growth in 2012).

Last year, the Fund had to face an unprecedented growth of the loss ratio. In particular, the guarantee institution effected 6 indemnity payments on defaulted loans for a total amount of RUB 18.7 million (against only one such payment in the amount of RUB 0.23 million for the whole preceding period of more than four years). As a result, the Fund's expenses exceeded its earnings by 30% in 2013. This fail indicates the need to improve the guarantee institution's risk management system which has proven to be inefficient.

At the same time, the Fund's positive track record of effectively recovering such expenses through applicable recourse procedures (in 2013, the Fund recovered RUB 1.8 million) has to be noted as an offsetting factor, which offers hope for a reduction in the amount of losses incurred.

Autonomous institution 'Guarantee Fund of Credit Support of the Republic of Mordovia' was registered on March 19, 2009. The sole founder of the fund is the government of the Republic of Mordovia. Over its existence, the guarantee institution has concluded more than 140 surety agreements amounting to ca. RUB 570 million, raising 4.64 rubles in SME-targeted external investments per each ruble of public investment. As of January 1, 2014, the guarantee institution's surety portfolio totaled RUB 310 million, the amount of funds raised reaching RUB 487 million.

The Fund secured the 36th position in AK&M Rating Agency's 2013 Ranking of Guarantee Institutions.

This press release is based on the statement of assigning a guarantee institution credit rating to autonomous institution 'Guarantee Fund of Credit Support of the Republic of Mordovia'.

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.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

CJSC AK&M Rating Agency

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