The 'B++' rating indicates that JSC Coalmetbank qualifies as a sufficiently creditworthy borrower. The risk of a delay in meeting obligations is moderate, the full or partial debt restructuring risk is insignificant. The rating assignment was based on the Credit Rating Methodology for Banks and their Debt Instruments rev. November 27, 2015.

JSC Coalmetbank headquartered in Chelyabinsk has outlets in 5 federal districts 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.

The Bank qualifies as a medium-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 January 1, 2015, the Bank was in the 200-300 range among Russian banks in terms of asset size, in the 300-400 range in terms of equity capital.

The Bank's credit rating is essentially supported by its high and improving equity, growing loan portfolio, adequate provisions for possible loan losses, and a high share of highly liquid assets.

In 2015, the Bank's equity capital increased by 19.2% reaching RUB 1,078 million. The key net worth growth drivers included the Bank's authorized capital and a subordinated loan, fully offsetting the negative effect of the loss generated in 2015. The substantial equity capital growth resulted from the takeover of JSC Neryungribank in the third quarter of 2015.

As a result of an increase in net worth, capital adequacy and core capital adequacy ratios reached 15.0% and 10.0%, respectively, appreciably exceeding the average levels in Russia's banking sector. The high capital adequacy makes the Bank's position strong enough to expand its income generating transactions.

We appreciate improvements in the Bank's net loans receivable increasing by RUB 527.5 million (+34.8%) for the 9-month period in 2015. As a result, the share of the loan portfolio in assets increased by 8.0 p.p. to 25.8%. While the Bank remains committed to securities as the main investment vehicle, the gradual increase in the share of high-margin investments (loans) in the structure of assets produces a positive impact on income from banking activities.

Another positive rating driver is the Bank's conservative policy in making provisions for possible loan losses as it mitigates the risks of losses from loan portfolio depreciation. As of January 1, 2016, the Bank's provisions fully covered its overdue loan debt and exceeded the combined amount of problem and non-performing loans.

The share of highly liquid components in the Bank's assets is steadily high. Throughout 2015, it never went below 16%, always exceeding the average level in the Russian banking system more than twice. Given the importance of customer deposits as the key funding source, the highly liquid assets contribute essentially to the Bank's financial viability.

At the same time, weaker key balance sheet performance indicators, sustained negative profitability and a high share of retail deposits are working against the Bank's rating.

One of the points of concern is a steady weakening of the Bank's key balance sheet performance indicators. For the 9-month period in 2015, liabilities of the credit institution dropped by 10.5% from RUB 7,996.7 million to RUB 7,158.8 million. The funding base contraction affected the Bank's assets which decreased by RUB 585.5 million (-6.9%) to RUB 7,913.3 million.

As the Bank's net interest income shrank and provisions for possible loan losses grew, its expenses exceeded the income, resulting in a loss. The negative financial result after taxes for the 9-month period in 2015 was RUB 107.2 million. Pre-tax profit of the bank was above zero only in one of the three quarterly periods under review in 2015.

We also regard the Bank's growing dependence on retail deposits as a negative rating driver. For the 9-month period in 2015, borrowings from retail clients increased by 49.1%, the share of retail deposits in the Bank's obligations reached 52.6%, indicating considerably weaker diversification of funding sources and higher pressure on the cost of funding.

Full name: Joint-Stock Company «Coalmetbank»

Short name: JSC «Coalmetbank»

JSC Coalmetbank has been operating in the market of banking services since 1994. The Bank is licensed by the Central Bank of the Russian Federation, general banking license no. № 2997 as of January 26, 2015. The Bank is a member of Russia's compulsory deposit insurance system, reg. no. 115 as of October 28, 2004.

AK&M Rating Agency assigned a credit rating to JSC Coalmetbank for the first time on August 14, 2009. The last rating action in relation to the Bank was taken on February 27, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until February 2017. 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 monitoring results of the current credit rating assigned to JSC Coalmetbank and the Credit Rating Methodology for Banks and their Debt Instruments rev. November 27, 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.

AK&M Rating Agency
Ul. Gubkina 3, Moscow, Russia
www.akmrating.ru
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.