The 'A' rating indicates that the Fund of Guarantees and Business Development of Pskov Region (FGBD PR) qualifies as a highly creditworthy microfinance institution. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.

The microfinance institution rating reflects the microloan book expansion, the favorable sectoral structure of loans as well as the high equity capital adequacy.

For the whole period of microfinance activities, FGBD PR has concluded 803 microloan contracts for a total amount of RUB 300 million (as of October 1, 2014). The Fund has expanded the current microloan portfolio every year (in 2014, the total amount of loans has increased by 4.4% against January 1), the outstanding debt on loans to SME businesses in Pskov region was 1.9%, i.e. up 5.5 p.p..

The Fund's portfolio of loans is well-diversified across economy sectors. Small businesses providing transport services have made the biggest contribution to the microloan book (23%), loans provided to them amount to RUB 14.5 million. 29% of the total amount of loans was provided to timber harvesting, public catering businesses as well as travel agencies. Appreciable shares in the microloan portfolio are attributable to industrial production (14%), retail (10%) and construction (9%). The sectoral structure of the loan portfolio is consistent with the economic development priorities of the region.

Equity capital adequacy ratio of FGBD PR is close to 100% (the lower regulatory limit is 15%). As of October 1, 2014, the microfinance institution's SME-targeted capital totaled RUB 253.7 million including RUB 64.25 million earmarked for microfinancing purposes. We regard the Fund's efforts to build up provisions against possible loan losses as a positive rating driver. At the end of the third quarter of 2014, the Fund's reserve fund amounted to RUB 25 million. FGBD PR does not borrow capital, its accounts payable are relatively small (RUB 1.6 million).

At the same time, the low operational sustainability and the high level of loan arrears and portfolio-at-risk (PAR) ratio are constraining the Fund's rating.

In 2013-2014, FGBD PR's operational sustainability looked down resulting from the outstripping growth in expenses compared with the increase in revenues (in absolute terms, expenses exceeded revenues by RUB 292 thousand in 2013). As a result, the Fund's operational sustainability ratio fell below the lower limit of 100% recommended by Russia's Ministry of Economic Development, reaching 91.2% as of October 1, 2014.

Today, the loan portfolio of FGBD PR includes 20 borrowers undergoing court enforcement proceedings aimed to recover RUB 7.31 million (the total amount of SME businesses' defaulted obligations to the Fund was RUB 11.1 million). Therefore, the Fund has recovered ca. 34% of the total amount of loan arrears. At the end of September 2014, portfolio-at-risk (PAR) ratio (in terms of the Ministry of Economic Development's order 411 as of July 1, 2014) was 6.7% increasing by 0.3 p.p. since the start of the year, the maximum acceptable level being 7%.

The Fund posted losses from lending in the amount of RUB 1.3 million at the end of the third quarter 2014, which we regard as a constraining factor. As a result, the write-off ratio was 2% (the maximum acceptable level being 5%).

The Fund of Guarantees and Business Development of Pskov Region (FGBD PR) was registered as an entity affiliated with the State Committee of Pskov region for Economic Development, Industry and Investments in September 2009 with the aim of providing access of small and medium-sized businesses and entities of the SME assistance infrastructure registered in Pskov region to loans and other financial resources. FGBD PR was registered as a microfinance institution on August 12, 2011.

This press release is based on the Statement of assignment of a microfinance institution credit rating to autonomous nonprofit organization Fund of Guarantees and Business Development of Pskov Region (FGBD PR).

The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion 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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