CJSC AK&M Rating Agency affirmed the national scale credit rating of OJSC IntechBank (license no. 2705) at 'A', tier 3. The outlook is stable.

The 'A' rating indicates that OJSC IntechBank qualifies as a highly creditworthy borrower. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.

OJSC IntechBank qualifies as a mid-sized Russian credit institution in terms of the amount of business. As of July 1, 2014, the Bank ranked in the 100-200 range among Russian banks in terms of assets and equity capital, in the 200-300 range in terms of retained earnings.

OJSC IntechBank is operating in two regions of the Russian Federation: the Republic of Tatarstan and Moscow. Apart from the HQ, the Bank's branch network comprises 3 branches, 17 satellite offices and 4 stand-alone cash desks.

The Bank provides the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

We appreciate the continuing growth of the key performance indicators, the good profitability, the fine quality of loan assets and the low percentage of loan arrears as positive rating drivers.

The Bank's well-structured and growing equity capital lays a foundation for the growth of its key basic balance sheet indicators.

As of July 1, 2014, the Bank's equity capital stood at RUB 3,034.1 million increasing by RUB 753.3 million (33.0%) since the start of 2013. The Bank maintains a good Tier 2 to Tier 1 capital ratio of 30.2% (insignificantly exceeding the regulatory requirement), the authorized capital is the main source of the Bank's equity capital (65.9%, 3 times above the average level in Russia's banking sector).

This has enabled the Bank to improve its key balance sheet indicators. In 2013 and the first quarter of 2014, the Bank expanded its liabilities by 35.1% (from RUB 14,359.1 million to RUB 19,406.1 million), assets by 30.3% (from RUB 16,685.4 million to RUB 21,741.0 million).

The expansion on the liabilities side resulted from the growing deposits made by personal customers and legal entities. In 2013-2014, they increased by RUB 3,635.5 million, their relative share in the Bank's liability structure to 83.9%, with a dominance of stable term deposits.

In our view, the well-structured and growing assets are having a positive impact on the Bank's rating. Over the period under review, the Bank achieved an appreciable increase in net loans receivable, its core earning asset (+51.2%), boosting the relative share of this asset item in the asset structure to 74.9%. As a result, interest income made a powerful contribution to the Bank's net earnings profile improving both in 2013 and the first half of 2014.

In 2013, the Bank's income grew faster than expense. As a result, its pre-tax profit increased by 10.4% year-on-year to RUB 144.5 million; in the first half of 2014, the Bank earned RUB 106.8 million in pre-tax profits.

While expanding its net loans receivable, the Bank was successful in improving the loan portfolio quality on both sides of the loan quality breakdown. The relative share of quality grade 1 and 2 loans increased from 69.50% to 83.55%, the share of low-quality loans (quality grades 4 and 5) decreased to 9.70% to 7.19%. Also, the Bank keeps the percentage of loan arrears low (2.0% as of July 1, 2014, far below the average banking level of 3.8%).

At the same time, the Bank's high and growing funding costs, low profitability, strong credit risk concentration, and weak current liquidity are working against its credit rating.

The Bank has seen the cost of borrowings and interest rates on customer deposits grow since 2013. As of April 1, 2014, the cost of debt was 7.9%, far above the average level in Russia's banking sector (4.9%), the interest rate on customer deposits exceeded the Central Bank of Russia's base rate.

As long as the cost of debt stays high, the Bank cannot earn much from banking operations (the profit margin being ca. 3%), which impairs the Bank's profitability. As of April 1, 2014, its ROA and ROE ratios stayed at 0.9% and 5.9%, way below the respective average levels in Russia's banking sector (1.8% and 14.5%).

We highlight the Bank's high credit risk arising from borrower defaults. On most of the reporting dates in the second half of 2013 and the first half of 2014, the corresponding N6 ratio stayed in the 22-23% range; on July 01, 2014, it reached 24.1% closely approaching the maximum acceptable level set by the regulatory authority (25%).

The imbalance between the growth rates of liabilities and assets (on call and maturing in 30 days or less) is also constraining the Bank's rating. As of July 01, 2014, the Bank's current liquidity ratio hit the minimum level of 59.2% just slightly exceeding the lower regulatory limit (50%), with a fairly weak liquidity quality ratio of 0.31.

Full Bank name: Open Joint Stock Company IntechBank.

Short name: OJSC IntechBank.

OJSC IntechBank has been operating in the market of banking services since 1994. The Bank possesses general banking license no. 2705 as of May 17, 2012 issued by the Central Bank of the Russian Federation. The Bank is a member of the deposit insurance system, reg. no. 487 as of January 20, 1995.

This press release is based on the Statement of assignment of a credit rating to OJSC IntechBank.

The 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.

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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www.akmrating.ru

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.