The ‘B++' rating indicates that OJSC Bank Zapadny is qualified as a sufficiently reliable borrower (the highest sub-grade of the ‘B' grade). Risk of a delay in meeting liabilities is moderate, restructuring risk for the loan / part of the loan is insignificant.
The credit rating of OJSC Bank Zapadny is essentially supported by the high growth rate of its key performance indicators (assets, capital) which is outstripping the respective growth rates throughout the country by far. Overall, the market position of the credit institution is therefore considered to be improving.
The Bank’s own funds have been increasing over the last three years. In 2010, they grew by 13.8% year-on-year. In 2011, the Bank’s equity capital increased 3.5-fold year-on-year to RUB 1,477.6 million from RUB 426.4 million For reference, the average growth rate in Russia’s banking system for 2011 was 10.8%.
The Bank’s assets have been growing for the period under review (2007-2011). In 2010, the gain was 370.3% against the domestic banking average of 14.9%. This major growth was mainly driven by investments in securities. As of October 1, 2011, the Bank’s assets increased by 211.5% year-to-date. For reference, the average growth year-to-date in Russia’s banking system as of the same date was 13.7%.
The quality of loan assets of OJSC Bank Zapadny is high enough. The share of NPLs">NPLs and problem loans in the loan portfolio structure as of March 1, 2012 was 1.5%, below the average level in Russia’s banking system (about 7%). This indicates that the Bank’s credit policy is well-balanced and the credit risk is low. The share of doubtful loans is 0.7% (against 10-11% on average in Russia’s banking system). Class 1 loans and class 2 loans account for 97.8% of the Bank’s loan portfolio, which is above the average value in the banking system of the Russian Federation (80-82%).
As of March 1, 2012, overdue payments on the loans granted by the Bank and other funds placed by accounted for 0.9% of the total loan portfolio, below the banking average rate (about 4%).
OJSC Bank Zapadny has achieved good diversification of funding sources. As of October 1, 2011 physical persons’ deposits accounted for the greater part of the Bank’s liabilities (64.8%), far above the average rate for Russian banks as of the same date (29.8%). Non-credit institutions accounted for 21.2% of the Bank’s liabilities.
Another argument for the credit score is the high liquidity level of OJSC Bank Zapadny. Quick liquidity ratio of the Bank as of March 1, 2012 was 346.91%, the minimum value required being 15%. Current liquidity ratio equaled 100.99% against the minimum acceptable percentage of 50%. As a whole, the principal liquidity indicators (N2, N3) exceeded the average level in the banking system of the Russian Federation in 2011. Long-term liquidity was 77.93%, far below the maximum limit of 120%.
The rating score is mainly restricted by the high absolute amount of investments in securities and their prevailing share in the Bank’s assets. As of October 1, 2011, the share of securities was 66% of all Bank’s assets (pretty high against the domestic banking average of 16%). However, bonds account for most of the security portfolio, which somewhat reduces the venturousness of its assets.
Another risk factor is the Bank’s dependence on operations involving foreign currencies. While such operations accounted for about 6.5% of all net incomes in 2010, their share soared to more than 70% in 2011.
The low capital adequacy also exerts pressure on the credit rating of OJSC Bank Zapadny. As of March 1, 2012, the N1 indicator of the Bank was 11.32%, which is below the average value in Russia’s banking system and almost teetering on the lower threshold acceptable (10%).
The high credit risk concentration is also restrictive on the rating score. The maximum amount of large credit risks (N7) is above the average. As of March 1, 2012, this indicator equaled 338.62% (the average percentage in Russia's banking sector as of the same date ranging from 225 to 228%). Total magnitude of insider-specific risk (N10.1) in 2012 is above the average value in the banking system of the Russian Federation but does not exceed the higher threshold of 3%.
OJSC Bank Zapadny has been active in the market of banking services since 1993. The Bank of Russia assigned it registration number 2598 as of December 3, 1993. The bank possesses a license for banking operations involving rubles and foreign currencies (without attraction of deposits of monetary resources from physical persons) as of February 8, 2011 and a license for attraction of deposits of monetary resources in rubles and foreign currencies from physical persons as of February 8, 2011.
The Bank participates in the compulsory deposit insurance system (registered under no. 695 as of February 24, 2005) and is a member of the Association of Russian Banks, the Moscow Interbank Currency Exchange, the international payment system MASTERCARD, the Customs Card payment system, and the SWIFT system.
OJSC Bank Zapadny provides the standard range of banking products and services involving Russian rubles and foreign currencies and performs operations in the security market.
The Bank’s auditor is Estimation and Audit Center LLC, a member of the Association of Accountants and Auditors Sodruzhestvo (NP AAS">NP AAS, a non-profit partnership) pursuant to decision of NP AAS">NP AAS Management Board as of March 25, 2010 (protocol no. 13). It is also registered in NP AAS">NP AAS list auditors and audit organizations, reg. no. 11006005961 as of March 25, 2010. The company’s financial statements as per international standards are validated by KPMG auditors.

This press release is based on the statement of assigning a credit quality rating to OJSC Bank Zapadny.
The rating score, 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.
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 – Provision 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide business banking services to project and engineering entities implementing investment projects), the MICEX (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base, for listing bonds and for providing access to the MICEX+ trading mode). Pursuant to an order of Russia's Government AK&M Ratings count for approving the capitalization increase procedure for banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC Analysis, Consulting and Marketing Rating Agency
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Press release by: Y.B. Kuznetsova
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.
E-mail: kuznetsova@akm.ru