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. February 25, 2016.

Headquartered in Moscow, Alef-Bank has a branch network comprising three branches in Lebedyan, Lysva and Kurgan, one operational office in Aleksin (Tula region) and two satellite offices in Moscow and Kurgan. The Bank is a universal credit institution providing the whole range of banking products and services involving Russian rubles and foreign currencies to legal entities and private customers.

Alef-Bank qualifies as a large-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 stable. As of July 1, 2016, the Bank was among the top 100-200 Russian banks in terms of asset size, equity capital and net profit (ranking 192nd, 147th and 88th, respectively).

The Bank's credit rating is essentially supported by equity capital improvements, steadily high capital adequacy ratios, strong operating profitability, appreciable provisions for problem and non-performing loans and a considerable amount of highly liquid assets.

The Bank's internal financing sources caused a consistent equity capital increase. In the period from July 1, 2015 to July 1, 2016, the Bank's equity capital grew by RUB 460.4 million (+ 15.2%) reaching RUB 3,486.8 million. The growth trend persisted in 2015, the equity capital growing by 8.2% for the 12-month period.

The Bank's capital adequacy calculated as the ratio of equity capital to risk-weighted assets stays at rather comfortable levels. In 2015-2016, the N1.0 never fell below 18%, with an average level of 21%, while the N1.2 in the same period was above 17% on average. Staying far from the regulatory limits and substantially exceeding the average levels in Russia's banking sector, these ratios provide strong opportunities for expanding the Bank's asset-side transactions.

We are pleased to note the credit institution's profitable operations. Despite the crisis effects in the domestic economy, the Bank generated positive financial results in most of the quarterly periods in 2015-2016. We also appreciate the Bank's operating efficiency proven by high return on assets and equity ratios (3.6% and 16.4%, respectively).

Another positive rating driver is the Bank's rather conservative loan loss provisioning policy. As of July 1, 2016, the credit institution's provisions for possible losses on problem and non-performing loans reached 49.7% and 100%, respectively. These ratios are close to the upper limit of the target range of provisions for such loans and contribute strongly to the stability of environment for financial activities, as the Bank can avoid considerable profit fluctuations due to the possible write-off of loan losses.

Seeing as the credit institution focuses on retail lending, the fairly high level of its highly liquid assets should be regarded as a positive rating driver. For the last 12 months since our previous review, the percentage of highly liquid assets never decreased below 8.3%, the average level being 12.4%. The highly liquid assets are an effective insurance instrument mitigating possible losses.

At the same time, the Bank's rating is constrained by negative changes in loans of quality grade 4, a notable increase in the segment of loans more than 30 days in arrears, a contraction in the aggregate loan portfolio a higher potential of speculative incomes.

Our review of the Bank's loan portfolio quality has shown a notable growth in the segment of problem loans. In the period from July 1, 2015 to July 1, 2016, the loans of quality grade 4 increased by 328% to reach RUB 4,972.8 million. Problem loans currently account for more than half (ca. 53%) of the loan book, which poses a relatively high credit risk.

The Bank's loans with payment delays exceeding 30 days also saw a substantial increase in the period under review (+38%). The share of these loans in the Bank's loan portfolio increased by 2.4 p.p. reaching 6.2%. The share of loans with delays in payments exceeding 180 days in total arrears on the loan portfolio increased from 10% to 97%.

While the quality of loans receivable weakened, the Bank's loan portfolio shrank by 28.7% and investments in securities went up 32.2%. As a result, given the high share of profits (losses) from forex transactions, the potential of speculative earnings grows pushing up volatility of the financial performance in future periods. 

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 10, 2015. All rating action announcements are available on the akmrating.ru website.

The rating is valid until August 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 Company. 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.

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