CJSC AK&M Rating Agency assigned a 'B+' guarantee institution rating on the national scale to the nonprofit organization "Regional centre of supporting small and middle enterprises" (RCSSME), with a stable outlook.

The 'B+' rating indicates that the nonprofit organization "Regional centre of supporting small and middle enterprises" qualifies as a guarantee institution with a sufficiently strong financial position and an acceptable level of SME assistance in the region. The full or partial default risk is low.

The guarantee institution based on the nonprofit organization "Regional centre of supporting small and middle enterprises" started operating in 2009. Its mission is to assist in creating a favorable development environment for SME businesses in Kursk region.

We regard the compliance with a number of requirements of Russia's Ministry of Economic Development and the satisfactory earning power as positive rating drivers for the guarantee institution.

RCSSME provides sureties to SME businesses registered in Kursk region under loan contracts exceeding RUB 1 million in value and maturing in no less than 1 year. Under the loan contract concluded, the borrower provides collateral covering 50% of the borrower's total liabilities. RCSSME's liabilities under the surety agreements concluded do not exceed 50% of the total amount of SME obligations in relative terms (actually 44.4% as of April 1, 2014). This scheme enables RCSSME to minimize the risk of default on its payment obligations arising from the surety agreements.

All the sureties for loans provided by the guarantee institution are concentrated in the agricultural sector, which conforms to the priority activities of SME businesses in Kursk region.

For 3 months of 2014, RCSSME earned RUB 1.2 million in income, five times what its expenses for the same period amounted to. Interest on deposits accounted for 78%, total commissions for the sureties (RUB 266 thousand) for 22% of the rated entity's income. In 2013, RCSSME's expenses (excluding the amount of obligations settled) reached RUB 759 thousand, half of its 12-month earnings. However, given the low guarantee capital multiple, the amount earned in commissions for the sureties provided to SME businesses in the region do not cover RCSSME's operating expenses which, to a greater decree, increase owing to the earnings from deposits.

The key constraints for the rating are the scanty portfolio of existing surety agreements, the high loss ratio, and the low guarantee capital multiple.

Over the period of existence, nonprofit organization "Regional centre of supporting small and middle enterprises" provided 30 sureties for a total amount of RUB 72.1 million, standing security for raising a total of RUB 162.4 million at the beginning of the second quarter of 2014. Over the period from 2012 to 2013, RCSSME did not provide a single surety while banks were selected through competitive procedures for the conclusion of a Cooperation Agreement regarding the provision of sureties to SME businesses. The need to select the partner banks arose from an increase in the guarantee fund by a total of RUB 85.4 million in late 2011-2013.

At the same time, nonprofit organization "Regional centre of supporting small and middle enterprises" discharged obligations to the partner bank (Kursk-based department no. 8596 of Sberbank of Russia) under five surety agreements for a total amount of RUB 10.4 million pursuant to the commercial court ruling in 2013. Its relative loss ratio was 14.4%, the worst result among the guarantee institutions in AK&M Rating Agency's H2 2013 Ranking of Regional Guarantee Institutions. Until RCSSME discharged its obligations, its RUB 4.5 million deposit placed with Sberbank of Russia was frozen preventing RCSSME from providing guarantee services. Only in the first quarter of 2014 did RCSSME conclude the first two surety agreements for a total amount of RUB 13.3 million.

As of April 1, 2014, the guarantee capital multiple was almost 16%, an evidence of the guarantee institution's low budget disbursement efficiency in the way of providing sureties to SME businesses registered in the region. RCSSME's middle-term development plans include a further surety portfolio expansion.

Nonprofit organization "Regional centre of supporting small and middle enterprises" was registered in Kursk region in August 2010. Its founders are as follows: the Consumer Market, Small Business Development and Licensing Committee of Kursk region, the Association of Private Transport Operators (Kursk regional public organization), nonprofit organization Kursk Chamber of Commerce and Industry, the Association of Employers (Kursk regional public organization), the Kursk regional department of the Retail, Public Catering, Consumer Cooperation and Business Union of the Russian Federation "Trade Unity".

Over its existence, the guarantee institution has concluded 30 surety agreements amounting to over RUB 72 million, raising 1.9 rubles in SME-targeted external investments per each ruble of public investment. As of April 1, 2014, the guarantee institution's surety portfolio totaled RUB 13 million, the amount of funds raised reaching RUB 162 million.

This press release is based on the Statement of assignment of a guarantee institution rating to nonprofit organization "Regional centre of supporting small and middle enterprises" (RCSSME).

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds to the Bank.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC Analysis, Consulting and Marketing 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) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

CJSC AK&M Rating Agency

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