The 'A' rating indicates that Alef-Bank 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. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. August 14, 2015.

Headquartered in Moscow, Alef-Bank has a branch network reaching five regions of Russia. The Bank provides the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

Alef-Bank is a mid-sized Russian credit institution in terms of the amount of business. The credit institution's position in the Russian market of banking services can be regarded as relatively stable. As of August 1, 2015, the Bank was among the top 100 Russian banks in terms of net profit and ranked in the 100-200 range in terms of the size of assets and equity capital.

The Bank's credit rating is essentially supported by the good capital adequacy and quality, the steadily profitable operations, the well-balanced interest policy, the high provisions for loans.

Alef-Bank's key equity metrics indicate its high capacity to absorb possible losses. Over the period under review in 2014-2015, CAR ratio (N1.0) never fell below 18% substantially exceeding the average percentage in Russia's banking sector (1.4-1.7 times). The capital quality ratio (Tier 2 to Tier 1 capital ratio) stays below the 30% mark (19.2% as of July 1, 2015, the last reporting date) easily meeting the Bank of Russia's standard and the Basel Accord guidelines. Besides, the Bank's authorized capital is dominating the structure of equity. 

The Bank's activity has been profitable throughout 2014 and the first half of 2015. Besides, the profit performance is on a positive trend, with 6-month pre-tax profit in 2015 increasing by 51% compared with the same period in 2014. This improvement is of particular importance given the overall profitability decline across the banking sector of Russia amidst today's economic recession.

The profit improvement has caused an increase in return ratios. In particular, the return on assets (ROA) ratio increased to 1.9%, the return on equity (ROE) ratio to 10.9%.

The steady flow of interest income resulting from the Bank's effective interest policy to keep the deposit and loan interest rates well-balanced (as evidenced by the broad net interest spread of at least 4.0% in 2014-2015) has contributed to the rated Bank's healthy financial performance.

We are pleased to see the Bank apply a rather conservative approach to making provisions for possible loan losses, thereby reducing the loan portfolio depreciation risks. As of July 1, 2015, such provisions reached 31.7% fully covering the overdue debt. Furthermore, the amount of provisions is 1.6 times above the combined amount of problem and non-performing loans.

At the same time, the lower balance sheet total, the fairly poor quality of loans provided and the higher dependence on private deposits are working against the Bank's rating.

In 2014-2015, the Bank's liabilities shrank by 20.9%, resulting in a 16.2% decline in assets, while earning assets decreased by 23.2%. This poses a risk to the Bank's profit performance on the medium-term horizon, despite today's positive trend.

We regard the unimpressive quality of the credit institution's loan portfolio as a rating constraint. In particular, as of July 1, 2015, loans of quality grades 4 and 5 accounted for 10.4% and 8.4% of the loan portfolio, respectively. The aggregate share of these poor-quality loans exceeds the average level in Russia's banking sector more than twice. Besides, the share of non-performing loans for the last 12 months saw a powerful growth (from 2.6% to 8.4%).

Another point of concern for the Bank is its growing dependence on private deposits. In 2014-2015, the share of the retail business in the Bank's liabilities increased from 22.6% to 45.4%. Given that the share of highly liquid assets dropped below 13% on certain reporting dates as a result of considerable volatility, the Bank's faces higher liquidity risks should a stress scenario play out.

Official Bank name: Alef-Bank.

Alef-Bank has been operating in the market of banking services since 1992. The Bank possesses general banking license no. 2119 as of February 8, 2013 issued by the Central Bank of the Russian Federation. The Bank is a member of the deposit insurance system, reg. no. 794 as of March 21, 2005.

AK&M Rating Agency assigned a credit rating to Alef-Bank for the first time on July 27, 2009. The last rating action in relation to the Bank was taken on September 24, 2014. All rating action announcements are available on the akmrating.ru website.

The rating is valid until September 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Bank's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Client. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

This press release is based on the Statement of assignment of a credit rating to Alef-Bank.

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.

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) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

CJSC AK&M Rating Agency

Ul. Gubkina 3, Moscow, Russia

www.akmrating.ru

Press release by: E.V. Romanov

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