The 'B+' rating indicates that the nonprofit organization "Regional centre of supporting small and middle enterprises" (RCSSME) 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.

Nonprofit organization "Regional centre of supporting small and middle enterprises" was registered on June 14, 2006. RCSSME specializes in the provision of sureties required for lending to SME businesses and provision of microloans to SME businesses in Kursk region.

In AK&M Rating Agency's view, the positive rating drivers include the operating profitability of RCSSME and its well-structured financial investments.  

In 2013-2014, RCSSME earned a sufficient profit to cover its expenses. In 2014, profit of RCSSME amounted to RUB 3.1 million (increasing 3.8 times against 2013). The strong income growth primarily resulted from an increase in deposits placed with credit institutions. In 2015, the Company's 3-month profit amounted to RUB 2 million.

As of April 1, 2015, the Fund's money resources (RUB 85.1 million) were placed with three Russian banks. Given that all of them are publicly-owned credit and financial institutions, RCSSME's financial investments may currently be regarded as highly reliable.

At the same time, RCSSME's credit rating was constrained by the low guarantee multiple, the poor structure of the loan book in terms of amounts under credit facility agreements and the high loss ratio.

Throughout the last five quarters, the Fund's guarantee multiple has stayed in the 15.9-25.9% range. For this period, the Fund only provided 10 sureties for a total amount of RUB 33.8 million. This indicates the Fund's underperformance in providing SME businesses with access to banks' credit facilities.

A substantial share (54.2%) of the surety commitments undertaken by the Fund under loan contracts are attributable to loans equal to or exceeding RUB 10 million, including loans exceeding RUB 20 million (31.9%) and loans amounting to RUB 10 to 20 million (22.3%). This loan portfolio imbalance in terms of the amount of existing contracts increases the Fund's financial risks closely related to its prospective financial soundness. 

As of April 1, 2015, RCSSME's loss ratio (the ratio of balanced loss to total amount of sureties provided) was 11.2%. It should be noted that the average loss ratio of guarantee institutions in 2014 was 2.25%. This ratio was calculated based on the data collected from 59 guarantee funds recently ranked by AK&M Rating Agency. The uncomfortably high loss ratio of RCSSME results from its policy to conclude several surety agreements with one borrower while having a relatively small surety portfolio, which naturally increased the concentration of related risks.

Nonprofit organization "Regional centre of supporting small and middle enterprises" was registered in June 2006. 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 38 surety agreements amounting to RUB 92.57 million, which enabled SME businesses to take out RUB 282.37 million in loans. As of April 1, 2015, the guarantee institution's surety portfolio totaled RUB 20.5 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 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.

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