The ‘A’ rating indicates that the Bank qualifies as a highly reliable borrower. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.

The Bank’s credit rating is essentially supported by the qualitative improvements in its balance sheet and operating performance observed in 2012 and continuing this year.

The Bank’s follow-on offering in late 2012 and property appreciation in the first quarter 2013 increased the credit institution’s equity capital more than twice to RUB 2,902 million on April 1, 2013 against RUB 1,364 million as of January 1, 2012, implying lower pressure on the equity capital adequacy, and catalyzing the growth of other balance sheet indicators. As a result, the Bank’s funding base increased by half for the same period (RUB 20,346 million from RUB 13,488 million), while assets improved by 56.5% (RUB 14,642 million to RUB 22,290 million). In both cases, the growth was driven by the retail segment where household deposits and loans to individuals increased more than twice.

While expanding the scale of its passive and active operations, the Bank also boosted its efficiency. In particular, pre-tax profit for 2012 was RUB 162.8 million against RUB 82.6 million the year before. The Bank owes this achievement to higher interest earnings from the loans provided to non-credit institutions and individuals (+85.2% for the one-year period) and a steady inflow of funds from the CONTACT transfer and payment system operated by RUSSLAVBANK.

In the first quarter 2013, the Bank’s performance continued to grow. As of April 1, pre-tax profit increased more than 3 times year-on-year to RUB 104.0 million, resulting in markedly higher profitability ratios almost reaching the average levels in Russia’s banking system at the end of Q1 2013: ROA was 1.9%, ROE reached 16.1%, against the average percentages of 2.1% and 17.0%, respectively.

We also appreciate the improved average quality of the loans receivable and low credit risks as positive rating drivers. In particular, the loan portfolio benefits from a major reduction in problem and non-performing loans (9.3% as of April 1, 2013 against 20.8% as of January 1, 2012) and a higher share of quality class 1 loans (to 33.5% from 19.8% for the same period). However, these figures are still below the respective average values in Russia’s banking sector (6.5% and 58.4%, respectively).

The Bank’s credit risks do not raise concern. The quality of credit risk ratios, applying AK&M Rating Agency’s estimation guidelines, is improving, its average percentage exceeding 100%. In 2012-2013, the maximum amount of credit risk per borrower or group of related borrowers (N6 ratio) was about 19% on average.

At the same time, the poorer capital quality, fairly high percentage of loan arrears, and lack of liquidity-specific stability are working against the Bank’s rating.

The property revaluation and topping-up of the subordinated loan drove up the Tier 2 to Tier 1 capital ratio more than twice to 65% from 29% as of January 1, 2012, ending up above the requirements of the Central Bank of Russia and the Basel committee’s guidelines.

From January 1, 2012, to April 1, 2103, the share of loan arrears in the total loan portfolio went down from 21.0% to 8.5%. However, the current percentage is still more than twice above the banking average, which generates a moderate risk for the Bank.

RUSSLAVBANK (Commercial Bank Russky Slaviansky Bank Closed Joint-Stock Company) has been operating in the market of banking services since 1990. The bank has a widespread network comprising 7 branches, a representative office and 45 internal business units including 35 satellite offices, 7 stand-alone cash desks and 1 operational office.

RUSSLAVBANK is licensed by the Central Bank of the Russian Federation (general banking license no. 1073 as of April 28, 2012). In December 2004, the Banking Supervision Committee of the Central Bank permitted RUSSLAVBANK to join the Deposit Insurance System (DIS). Since 2012, the Bank’s operations have been audited by CJSC KMPG, the largest Russian audit firm in 2011, according to the Kommersant Dengi weekly.

RUSSLAVBANK is a mid-sized Russian credit institution in terms of assets and volume of operations. As of April 1, 2013, the Bank ranked 150th in assets (RUB 22.9 billion), 169th in equity (RUB 2.9 billion) in Russia, as estimated by Interfax-Center for Economic Analysis.

The bank provides all kinds of banking products and services involving Russian rubles and foreign currencies, specializing in retail lending and household deposits.

Besides, RUSSLAVBANK is the operator, clearing and settlement center for CONTACT, the first Russian money transfer and payment system, established by the Bank in 1999. Today, CONTACT unites more than 900 financial institutions and offers its customers a powerful branching network comprising about 330,000 points of service in more than 110 countries worldwide. In 2012, the turnover of CONTACT increased by 60% against 2011 reaching 5.2 billion US dollars.

This press release is based on the statement of assigning a credit rating to RUSSLAVBANK.

The credit rating, 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.

CJSC 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.

CJSC AK&M 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).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), and the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC AK&M Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.V. Khibukhin
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.