The 'A' rating indicates that JSCB Primorye qualifies as a highly reliable 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.

JSCB Primorye qualifies as a medium-sized Russian credit institution in terms of the amount of business. The head office of JSCB Primorye is located in Vladivostok. The Bank is ranked in the 100-200 range among Russian banks in terms of assets and equity capital. The bank provides all types of services involving Russian rubles and foreign currencies to legal entities and individuals.

The credit rating is essentially supported by the Bank's good capital adequacy and quality, strong liquidity position, and high quality of the securities portfolio.

We appreciate the sound capital adequacy of JSCB Primorye as a positive rating driver: in 2015, the N1.0 ratio never fell below the average level in Russia's banking sector. As of September 1, 2015, the Bank's equity capital adequacy ratio was 13.4%. Since our previous review (September 1, 2014), the Bank improved the quality of capital: as of September 1, 2015, the Tier 2 capital to core capital ratio decreased from 33.6% to 23.3%.

The Bank maintained a comfortable liquidity position over the past 12 months: as of September 1, 2015, the share of highly liquid assets in total assets of the credit institution reached ca. 12% exceeding the average level in the banking sector (8%). As of the last reporting date, the acid test ratio (N2) was 113.4%, the current liquidity ratio (N3) reached 136.5%, both far above the respective minimum thresholds (15% and 50%).

In 2015, a large part (25%) of the rated Bank's assets was formed by net investments in securities accounted. Over the period from September 1, 2014 to September 1, 2015, their total amount increased by RUB 3.4 billion (63%). We are pleased to see that bonds with the highest ratings account for 91% of the Bank's securities portfolio, which indicates its high quality and contributes to the rating.

The sub-level (tier) downgrade was triggered by the Bank's growing dependence on retail deposits and the weaker loan book resulting in losses and a reduction in capital.

We regard the Bank's fairly aggressive retail deposit raising policy as the key risk factor. Over the period from September 1, 2014 to September 1, 2015, deposits of individuals increased by 46%, the average growth rate in the banking sector being 19%. Therefore, the relative share of deposits in the liabilities of JSCB Primorye has reached 78.6%.

Another point of concern is the substantial deterioration of the Bank's loans receivable: over the period starting from September 1, 2014, the combined percentage of problem and non-performing loans increased by 14 points to 17.3% as of the last reporting date, currently exceeding the average level of 8.2% in Russia's banking sector more than twice. At the same time, the relative share of overdue debt in the loan portfolio of JSCB Primorye increased from 1.5% to 5.7%. It should however be noted that the percentage of loan arrears was almost equal to the average level in Russia's banking sector (5.2%).

As a result, the Bank's provisions for possible losses increased 2.2 times, which caused a 65% reduction in net incomes in the first half of 2015 against the same period in 2014. As a result, the Bank posted a 6-month loss of RUB 211 million.

Since our previous review, the capital of JSCB Primorye has been on a downward trend in the wake of operating losses. However, net of the negative effects from additional provisioning, the Bank's financial performance in the first half of 2015 is roughly equal to the result achieved for the same period in 2014.

Full Bank name: Joint-stock commercial bank «Primorye»

Short name: JSCB «Primorye»

JSCB Primorye has been operating in the market of banking services since 1994. The Bank of Russia assigned it registration number 3001 as of July 27 1994. The Bank possesses a general license for banking services as of August 31, 2012. The Bank has been a member of Russia's deposit insurance system since November 4, 2004, DIS registration no. 147.

AK&M Rating Agency assigned a credit rating to JSCB Primorye for the first time on November 24, 2011. The last rating action in relation to the Bank was taken on October 16, 2014. All rating action announcements are available on the akmrating.ru website.

The rating is valid until October 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 Bank. 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 JSCB Primorye. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. August 14, 2015.

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

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www.akmrating.ru

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